CAF5 FAR1 QB 2017-Castar - PK PDF

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ICAP
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Financial accounting and reporting I

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Certificate in Accounting and Finance
C
Contents
Page
Question and Answers Index v
Questions
Section A Questions 1
Answers
Section B Answers 79
© Emile Woolf International iii The Institute of Chartered Accountants of Pakistan

© Emile Woolf International iv The Institute of Chartered Accountants of Pakistan

I
Index to questions and answers
Question Answer
page page
CHAPTER 1 – IAS 2: Inventories
1.1 SHADUR RETAIL 1 79
1.2 MEASUREMENT OF INVENTORIES 2 80
1.3 KHEWRA MANUFACTURING 2 80
1.4 SUPERIOR ENTERPRISES 3 81

INTERNATIONAL ACCOUNTING
1.5 3 81
STANDARDS
1.6 NKL ENTERPRISES 4 82
1.7 FASHION BLUE ENTERPRISES 4 82
1.8 KHAN LIMITED 5 84
1.9 MUGHAL TRADING CORPORATION 6 85
1.10 AFRIDI 7 87
1.11 SUN SOYA OIL & COMPANY 8 88
CHAPTER 2 – IAS 16: Property, plant and equipment
2.1 SUNDRY QUESTIONS 9 89
2.2 LAHORE MOTORS LIMTED 10 90
2.3 MB LIMITED 11 92
2.4 CHINIOT TRUCKING LIMITED 11 93
2.5 ASLAM, BASHIR & COMPANY 12 95
2.6 AZFAR AND COMPANY 13 96
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Question Answer
page page
2.7 NAVEED ENTERPRISES 13 97
2.8 MJ ENTERPRISES 14 98
2.9 ZIAKOT STEEL WORKS 15 99
CHAPTER 3 – IFRS 15: Revenue from contracts with customers
3.1 PARVEZ LIMTED 16 100
3.2 SACHAL LIMITED 16 101
CHAPTER 4 – Preparation of financial statements
4.1 SAGODHA SPICES LIMITED 17 103
4.2 KASUR CHEMICALS LIMITED 18 104
4.3 OKARA HAIR PRODUCTS LIMITED 19 105
4.4 THATTA TOURS LIMITED 20 107
4.5 BSZ LIMITED 21 109
4.6 YASIR INDUSTRIES LIMITED 22 112
CHAPTER 5 – IAS 7: Statement of cash flows
5.1 TRANGO LIMITED 24 115
5.2 NARDONE LIMITED 25 117
5.3 HOT SAUCE LIMITED 26 118
5.4 QUETTA TRACK LIMITED 27 120
5.5 MARDAN SOFTWARE LIMITED 28 122
5.6 TARBELA TRADERS 30 124
5.7 THE SINDH ROBOTICS COMPANY 31 126
5.8 ABIDA 32 128
5.9 MR MOOSANI 33 129
5.10 SAKHAWAT HUSSAIN 34 130
5.11 MR JUNAID JANJUA 35 131
5.12 AMIN INDUSTRIES 36 132
CHAPTER 6 – Income and expenditure accounts
6.1 GILTAN GOLF CLUB 37 134
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Index to questions and answers
Question Answer
page page
6.2 LANGTON HOCKEY CLUB 38 136
6.3 GULSHAN CRICKET CLUB 39 138
6.4 SEHAT CLUB 40 140
6.5 AB SPORTS AND SOCIAL CLUB 41 141
6.6 GD SPORTS CLUB 43 143
6.7 HB TENNIS CLUB 44 145
6.8 MONARCH SPORTS CLUB 45 147
6.9 LH SPORTS CLUB 46 148
CHAPTER 7 – Preparation of accounts from incomplete records
7.1 SHORT QUESTIONS 47 149
7.2 IRUM 47 150
7.3 COST STRUCTURES 48 151
7.4 TAHIR 49 152
7.5 IJAZ 50 153
7.6 RASHID 51 156
7.7 MUDASSAR 52 159
7.8 ASLAM 53 161
7.9 UMAR 54 163
7.10 YASIN 55 165
7.11 MUNIRA 57 168
7.12 ADNAN 58 169
7.13 ASIF 59 170
7.14 MANSOOR 61 173
7.15 DANISH 62 175
CHAPTER 8 – Partnership accounting – Retirement, death, dissolution,

amalgamation and liquidation
8.1 A AND B 64 177
8.2 P, Q AND R 65 178
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Question Answer
page page
8.3 X Y AND Z 66 180
8.4 AQUEEL AND BARKAT 66 183
8.5 ALPHA AND BETA 67 185
8.6 L&N 68 187
8.7 W, Y AND A 69 189
CHAPTER 9 – Fundamentals of cost accounting
9.1 SIGMA 71 191

MANAGEMENT INFORMATION
9.2 71 192
FUNCTIONS
9.3 JOHN PIRELLI 71 193
9.4 CLASSIFICATION OF COSTS 71 194
9.5 REGRESSION 1 72 195
9.6 REGRESSION 2 72 196
9.7 COST ESTIMATION 73 196
9.8 IMI LIMITED 73 198
9.9 BULBUL LIMITED 74 198
CHAPTER 10 – Interpretation of financial statements
10.1 WASIM 75 199
10.2 AMIR AND MO 76 200

ALPHA LIMITED AND OMEGA
10.3 77 201
LIMITED
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Q
Questions
CHAPTER 1 – IAS 2: INVENTORIES
1.1 SHADUR RETAIL
A Shadur Retail has the following purchases and sales of a particular product line.
Units Purchase Units Selling
purchased price per sold price per
unit unit
Rs.000 Rs.000
2 December 100 500 60 530
16 December 60 503 80 528
30 December 70 506 50 526
14 January 50 509 70 524
28 January 80 512 50 522
11 February 40 515 40 520
At 31 December the physical inventory was 150 units. The cost of inventories is
determined on a FIFO basis. Selling and distribution costs amount to 5% of selling
price and general administration expenses amount to 7% of selling price.
Required:
(a) State any three reasons why the net realisable value of inventory may be less
than cost.
(b) Calculate to the nearest Rs.000 the value of inventory at 31 December
(i) at cost
(ii) at net realisable value
(iii) at the amount to be included in the financial statements in accordance with
IAS 2
© Emile Woolf International 1 The Institute of Chartered Accountants of Pakistan

1.2 MEASUREMENT OF INVENTORIES

IAS 2 Inventories prescribes the accounting treatment for inventories under the
historical cost system.
Required:
(a) Briefly explain how IAS 2 requires the following to be dealt with.
(i) Fixed production overheads.
(ii) The determination of the lower of cost and net realisable value.
(iii) The identification of costs when there are large numbers of items which are
ordinarily interchangeable.
(b) State four disclosure requirements of IAS 2 in respect of inventories.
1.3 KHEWRA MANUFACTURING

Khewra Manufacturing was formed on 1 January 2015. The entity manufactures and
sells a single product and values it on a first-in, first-out basis.
One tonne of raw material is processed into one tonne of finished goods.
The following details relate to 2015.
Purchases of raw materials
Purchases: 1,000 tonnes of raw materials per week
Price: Rs.100,000 per tonne on 1 January, increasing to
Rs.150,000 per tonne on 1 July
Import duties: Rs.10,000 per tonne
Transport from docks to factory: Rs.20,000 per tonne
Production costs
Production capacity: 1,500 tonnes per week
Variable costs: Rs.25,000 per tonne
Fixed costs: Rs.30,000,000 per week
Sales details
Selling price: Rs.240,000 per tonne
Delivery costs to customers: Rs.8,000 per tonne
Selling costs: Rs.4,000 per tonne
Inventories at 31 December 2015
Raw materials: 2,000 tonnes
Finished goods: 2,000 tonnes
There is a ready market for raw materials and the NRV of the raw materials is higher
than its cost.
Required
Calculate and disclose the value of inventories at 31 December 2015 in accordance
with IAS2.

Questions
1.4 SUPERIOR ENTERPRISES

Superior Enterprises is engaged in the business of supplying four different products to
four different industries. The details relating to the movement of inventory and related
expenditures are as follows:
Quantities
Opening
Import Duties
balance Qty.
Invoice sold
Items purcha
Value
sed
Re- Non-
Qty. Value Qty. Value
fundable refundable
A 30 60,000 360 810,000 120,000 90,000 350 1,015,000
B 60 90,000 780 1,560,000 200,000 150,000 800 2,080,000
C 40 120,000 560 1,820,000 250,000 200,000 580 2,320,000
D 80 200,000 600 1,650,000 - - 350 1,155,000
The following information is available:

(i) The transportation charges to the company’s godown are Rs. 100 per unit.
(ii) The transportation charges from the company’s godown to the customers’
premises are approximately Rs. 150 per unit.
(iii) 25% of the closing inventory of item A has been damaged due to mishandling
and can only be sold at 60% of its selling price.
(iv) A new product has been introduced by a competitor. It is similar to product C and
is being marketed at Rs. 3,200 per unit. The management of Superior Enterprises
is of the opinion that in future, it will also have to reduce the price of C to Rs.
3,500 per unit.
(v) On October 1, 2015, 200 units of D had been pledged with a bank as security
against a short term loan which is repayable on March 31, 2016.
Required:
(a) Compute the value of the inventory as at December 31, 2015, using any of the
methods allowed under IAS-2 “Inventories”.
(b) List the information that will have to be disclosed in the financial statements, to
comply with the requirements of IAS-2 “Inventories”.
1.5 INTERNATIONAL ACCOUNTING STANDARDS

Explain the following terms in accordance with the relevant International Accounting
Standards (IASs):
(i) Inventories
(ii) Property, Plant and Equipment

1.6 NKL ENTERPRISES

NKL Enterprises produces a single product. On July 31, 2015, the finished goods
inventory consisted of 4,000 units valued at Rs. 220 per unit and the inventory of raw
materials was worth Rs. 540,000. For the month of August 2015, the books of account
show the following:
Rupees
Raw material purchases 845,000
Direct labour 735,000
Selling costs 248,000
Depreciation on plant and machinery 80,000
Distribution costs 89,560
Factory manager’s salary 47,600
Indirect labour 148,000
Indirect material consumed 45,000
Other production overheads 84,000
Other accounting costs 60,540
Other administration overheads 188,600
Other information:
(i) 8,000 units of finished goods were produced during August 2015.
(ii) The value of raw materials on August 31, 2015 amounted to Rs. 600,000.
(iii) There was no work-in-progress at the start of the month. However, on August 31,
the value of work-in-progress is approximately Rs. 250,000.
(iv) 5,000 units of finished goods were available in inventory as on August 31, 2015.
Required:
Compute the value of closing inventory of finished goods as on August 31, 2015 based
on weighted average cost method.
1.7 FASHION BLUE ENTERPRISES

Fashion Blue Enterprises carries out business of readymade garments through large
shops in the major cities of Pakistan.
Its inventory ledger account balance at December 31, 2015 under the perpetual
inventory system, was Rs. 73,410,000. The physical count revealed that the cost of
inventory on hand was Rs. 71,400,000 only. Its owner Mr. Kaizer expected a small
inventory shortfall due to damage and petty theft, but considered this shortfall to be
excessive.
On January 5, 2016, Kaizer carried out an investigation and discovered the following:
(i) Goods costing Rs. 300,000 were invoiced to Ebrahim Limited for Rs. 425,000 on
December 29, 2015 on FOB basis. The goods were actually despatched to the
customer on January 2, 2016.
(ii) Included in the physical count were goods worth Rs. 200,000 which were held on
behalf of a third party.

Questions
(iii) Goods costing Rs. 410,000 purchased on credit from Mustafa & Co. were
received on December 28, 2015 and included in the physical count. However, the
purchase had not been recorded.
(iv) On December 23, 2015 goods costing Rs. 400,000 were purchased on credit
from Mubina Supplies, Faisalabad. The purchase was recorded on December 27,
2015 i.e. when the goods were lifted by the transport company appointed by Mr.
Kaizar, from the warehouse of Mubina Supplies. The goods arrived on January 3,
2016.
(v) List of inventory at a shop situated in Sialkot had been under cast by Rs. 90,000.
(vi) On December 25, 2015 goods costing Rs. 310,000 were sold on credit to Skims
Industries for Rs. 500,000. The goods were shipped on December 28, 2015 and
were received by the customer on January 2, 2016.
(vii) Goods costing Rs. 2,500,000 had been returned to Ali Garments on December
30, 2015. A credit note was received from the supplier on January 5, 2016 and
entered in the books in January 2016. No payment had been made for the goods
prior to their return.
(viii) Goods sold to a customer Mr. Saleem were recorded in inventory ledger account
at the sale price of Rs. 780,000. The goods were sold at cost plus 30%.
Required:
(a) Reconcile the ledger balance with the physical record to determine the shortage
(if any).
(b) Determine the value of inventory that should be recorded in the statements of
financial position.
(c) Prepare the adjusting entries that should be recorded in the books of Fashion
Blue Enterprises, in December 2015.
1.8 KHAN LIMITED

Khan Limited closes its accounts on June 30 each year. The company was unable to
take inventory of physical inventory until July 14, 2015 on which date the physical
inventory was valued at Rs. 185,000. The following details are available in respect of
the period July 1 to July 14, 2015:
(i) Payments against purchases amounted to Rs. 48,000 and included:
Rs. 5,000 in respect of goods received on June 28, 2015;
Rs. 6,000 in respect of goods received on July 18, 2015;
Rs. 2,000 in respect of goods received and returned to supplier on the
same date i.e. July 7, 2015.
(ii) Collection against sales amounted to Rs. 60,000 and included:
Rs. 1,500 in respect of goods which left the warehouse on June 29, 2015;
Rs. 2,800 in respect of goods which were not dispatched until July 15,
2015;
Rs. 760 in respect of goods invoiced and dispatched on July 10, 2015 but
returned by the customers on July 12. These were included in the inventory
taken on July 14, 2015.
(iii) The rate of gross profit is 25% of selling price.

(iv) Goods costing Rs. 6,000 were purchased on June 28 but remained unpaid till
July 24, 2015.
(v) An invoice amounting to Rs. 10,000 was raised on July 9, 2015 but remained
uncollected till July 14, 2015.
(vi) An inspection of the inventory count sheets prepared on July 14, 2015 showed
that a page total of Rs. 5,000 had been carried to the summary as Rs. 6,000. In
addition, the total of another page had been undercast by Rs. 200.
(vii) Included in the physical count were goods costing Rs. 2,200 which were held on
behalf of a supplier.
Required:
Determine the amount of inventory required to be disclosed in the financial statements
as at June 30, 2015.
1.9 MUGHAL TRADING CORPORATION

(a) On 1 January 2016, a company held 300 units of an item of finished goods
inventory. These were valued at Rs. 22 each. During January 2016 three batches
of finished goods were received into store from the production department, as
follows:
Date Units Production cost per unit
Received Rupees
10-Jan 400 Rs. 23
20-Jan 400 Rs. 25
25-Jan 400 Rs. 26
Goods sold out of the inventory during January 2016 were as follows:
Date Units sold Sale price per unit
Rupees
14-Jan 500 Rs. 31
21-Jan 500 Rs. 33
28-Jan 100 Rs. 32
Required:
Compute the cost of sales and inventory at 31 January 2016, applying the
following basis of inventory valuation:
(i) FIFO
(ii) Weighted Average Cost (Average is updated after every transaction).
(b) The cost of inventory of Mughal Trading Corporation (MTC) based on inventory
count carried out on 17 January 2016 was Rs. 675,000. These included goods
costing Rs. 15,000 which were purchased in December 2015 and have a net
realisable value of Rs. 12,000.
During the period between 31 December 2015 and 17 January 2016, following
transactions took place:
(i) Value of goods purchased amounted to Rs. 155,710.
(ii) Sale of goods amounted to Rs. 250,000. MTC normally sells goods at a
mark-up of 25% of cost. However, 20% of the sales were made at a
discount of 8% of the normal selling price.
(iii) Goods costing Rs. 1990 were returned to a supplier

Questions
(iv) Goods sold to a customer on 4 January 2016 were returned on 15 January

2016.
Calculate the value of inventories that should be reported in the financial
statements of MTC as at 31 December 2015.
(c) Which of the following items may be included in computing the value of inventory
of finished goods manufactured by a business:
(i) raw materials
(ii) foremen's salaries
(iii) carriage inwards
(iv) carriage outwards
(v) plant depreciation
(vi) cost of storage of finished goods
(vii) abnormal waste of materials
(viii) salesmen’s commission
(d) What will be the effect of the following on cost of sales, profit and inventory:
(i) if in times of rising prices , the valuation of inventory is done on the basis of
FIFO as opposed to weighted average cost method?
(ii) if an item of inventory having cost of Rs. 69,300 and net realisable value of
Rs. 65,000 is omitted from original inventory count?
1.10 AFRIDI
Afridi does not keep perpetual records of inventory. At the end of each quarter, the
value of inventory is determined through physical inventory. However, the record of
inventory taken on 31 March 2015 was destroyed in an accident and Afridi has
extracted the following information for the purpose of inventory valuation:
(i) Invoices entered in the purchase day book, during the quarter, totalled Rs.
138,560 of which Rs. 28,000 related to the goods received on or before 31
December 2014. Invoices entered in April 2015 relating to goods received in
March 2015 amount to Rs. 37,000.
(ii) Sales invoiced to customers amounted to Rs. 151,073 of which Rs. 38,240
related to goods dispatched on or before 31 December 2014. Goods dispatched
to customers before 31 March 2015 but invoiced in April 2015 amounted to Rs.
25,421.
(iii) Credit notes of Rs. 12,800 had been issued to customers in respect of goods
returned during the period.
(iv) Purchases included Rs. 2,200 spent on acquisition of a ceiling fan for the shop.
(v) A sale invoice of Rs. 5,760 had been recorded twice in the sales day book.
(vi) Goods having sale value of Rs. 2,100 were given by way of charity.
(vii) Afridi normally sells goods at a margin of 20% on cost. However, he had
allowed a special discount of 10% on goods costing Rs. 6,000 which were sold
on 15 February 2015.
(viii) On 31 December 2014, the inventory was valued at Rs. 140,525. However,
while reviewing these inventory sheets on 31 March 2015 the following
discrepancies were found:

(a) A page total of Rs. 15,059 had been carried to the summary as Rs.
25,059.
(b) 1,000 items costing Rs. 10 each had been valued at Rs. 0.50 each.
Required:
Calculate the amount of inventory in hand as on 31 March 2015.
1.11 SUN SOYA OIL & COMPANY

Sun Soya Oil & Company is a wholesaler of cooking oil. Due to an emergency, its
annual inventory taking was delayed till 3 July 2015, on which date the physical
inventory was valued at Rs. 24 million.
An examination of the related records disclosed that the following events took place
on 1st and 2nd July, 2015:
(a) Sales invoices amounting to Rs. 4 million were issued. These included invoices
amounting to:
Rs. 200,000 in respect of oil which was dispatched on 29 June 2015 but
had not been invoiced.
Rs. 400,000 in respect of oil not dispatched until 5 July 2015 and;
Rs. 200,000 in respect of oil on sale or return basis.
The average rate of gross profit is 331ൗ3 % of cost.
(b) Returns from customers totalled Rs. 600,000.
(c) Purchase invoices amounting to Rs. 1.8 million were received. These included
invoices worth:
Rs. 600,000 for oil received in June 2015, and;
Rs. 300,000 for oil received on 7 July 2015.
(d) Purchase returns totalled Rs. 400,000.
A review of the records also disclosed the following errors:
Inventories lying in Abbotabad were not included in the physical count. The
cost of such inventory on 30 June 2014 and 3 July 2015 was Rs. 0.5
million and Rs. 3 million respectively.
An arithmetical error in the inventory sheets on 3 July 2015 resulted in an
overvaluation of Rs. 450,000.
Required:
Prepare a statement showing the correct amount of the inventory as on 30 June 2015.

Questions
CHAPTER 2 – IAS 16: PROPERTY, PLANT AND EQUIPMENT
2.1 SUNDRY QUESTIONS

1 A company purchased some heavy machinery. The invoice for the machinery
showed the following items:
Rs.000
Cost of machinery 46,000
Cost of delivery 900
Cost of 12-month warranty on the machinery 1,600
Total amount payable 48,500
In addition, the company incurred Rs.3.4 million in making modifications to its
factory so that the heavy machinery could be installed.
What should be the cost of the machinery in the company’s machinery account in
the ledger?
2 A business acquired new premises at a cost of Rs.400 million on 1 January 2015.
In the period to the year end of 31 March 2015 the following further costs were
incurred.
Rs.000
Costs of initial adaptation of the building 12,000
Legal costs relating to the purchase 2,500
Monthly cleaning contract 3,400
Cost of air conditioning unit necessary for machinery to be used 2,800
Cost of machinery 12,300
What amount should appear as the cost of premises in the company’s statement
of financial position at 31 March 2015?
3 The plant and machinery account for a company for the year ended 30 June 2015
is as follows.
Plant and machinery account

2014 Rs. 2015 Rs.
1 July Balance 960,000 31 March Transfer to 80,000
disposal
account
31 Dec Cash: 200,000 30 June Balance 1,080,000
purchase of
machines
1,160,000 1,160,000
The company’s policy is to charge depreciation on plant and machinery at 25%
each year on the straight-line basis, with proportionate charges in the year of
acquisition and the year of disposal. None of the assets held at 1 July 2014 was
more than three years old.
What is the charge for depreciation of plant and machinery for the year ended 30
June 2015?

4 A motor car was purchased in May 2012 for Rs.7.8 million. The accounting policy
is depreciation at 20% straight line on the cost of the assets in use at the year
end. The car was traded in for a replacement vehicle purchased in July 2015 with
the agreed part exchange value being Rs.2.4 million. The company’s year-end is
31 December.
What was the profit or loss on disposal?
5 A business purchased some land and buildings on 1 January 2011 for Rs.800
million (land Rs.250 million and buildings Rs.550 million). The buildings are to be
depreciated over a period of 50 years.
On 1 January 2015 the land and buildings were revalued to Rs.1,500 million (land
Rs.400 million and buildings Rs.1,100 million). At this date the buildings were
believed to have a remaining useful life of 40 years.
What is the original depreciation charge for the buildings and the revised charge
from 1 January 2015?
6 A business purchased land for Rs.250 million and buildings for Rs.400 million on
1 January 2011. The buildings were to be depreciated over a period of 50 years.
On 1 January 2015 the land was revalued to Rs.520 million and the buildings
were revalued at Rs.750 million.
What amount is to be taken to the revaluation reserve on 1 January 2015?
2.2 LAHORE MOTORS LIMTED

Lahore Motors Limited leases second-hand German sports cars, generally a standard
model. It started business on 1 January 2012 and has decided to depreciate the cars
on a straight line basis at 25% per annum on cost at the year-end. During the years
2012 to 2015 the following purchases and sales of cars took place.
2012 Acquired 20 Porsche 924 Turbos at a cost of Rs.18.6 million each
2013 Purchased 6 Porsches for a total cost of Rs.108.6 million.
2014 Traded-in two of the cars acquired in 2012 and received an allowance of
Rs.9 million each which was set against the purchase of a further two cars
costing Rs.19.8 million each
2015 Replaced 15 cars purchased in 2012 with another 15, each of which cost
Rs.21 million. A trade-in allowance totalling Rs.48 million was received
Lahore Motors Limted prepares accounts to 31 December each year.
Required:
Prepare a vehicle account, a provision for depreciation account, a depreciation account
and a disposals account for the years 2012 to 2015.

Questions
2.3 MB LIMITED
MB Company bought an asset on 24 July 2012 at a cost of Rs.180 million. The asset
had an expected useful life of 10 years and an expected residual value of Rs.20 million.
The company applies straight-line depreciation to this category of non-current assets. It
also charges a full year’s depreciation in the year of acquisition and no depreciation in
the year of disposal. Its financial year ends on 31 December.
At 31 December 2013, the company re-valued the asset to Rs.240 million. Its expected
remaining useful life is now 8 years, but its expected residual value is zero.
Required
(a) Show in T account format the book-keeping entries required to record the
revaluation of the asset on 31 December 2013.
(b) The asset was sold on 12 February 2015 for Rs.225 million. Calculate the gain or
loss on disposal reported in the statement of comprehensive income for 2015,
and show the total effect of the disposal on the retained earnings of the company.
Ignore taxation.
2.4 CHINIOT TRUCKING LIMITED

Chiniot Trucking Limited is a haulage contractor. At 1 May 2014 the company had three
lorries, details of which are as follows:
Lorry registration number Date purchased Cost
Rs.000
BOW 1 1 July 2011 16,000
COW 2 1 February 2013 21,000
DOW 3 1 April 2014 31,000
During the year to 30 April 2015, the following lorry transactions took place:
(a) BOW 1 was sold on 31 July 2014 for Rs.3 million on cash terms. On 1 August
2014 Chiniot Trucking Limited replaced it with a new lorry, registration number
FOW 4 for which he paid Rs.35 million in cash.
(b) On 1 December 2014, the new lorry (FOW 4) was involved in a major accident,
and as a result was completely written off. The company was able to agree a
claim with his insurance company, and on 31 December 2014 he received Rs.30
million from the insurance company. On 1 January 2015 he bought another lorry
(registration number HOW5) for Rs.41 million.
(c) During March 2015, the company decided to replace the lorry bought on 1 April
2014 (registration number DOW 3) with a new lorry. It was delivered on 1 April
2015 (registration number JOW 6). The company agreed a purchase price of
Rs.26 million for the new lorry, the terms of which were Rs.20 million in part-
exchange for the old lorry and the balance to be paid immediately in cash.
Notes:
(1) Chiniot Trucking Limited uses the straight-line method of depreciation.
(2) The lorries are depreciated over a five-year period by which time they are
assumed to have an exchange value of Rs.1 million each.
(3) A full year’s depreciation is charged in the year of acquisition, but no depreciation
is charged if a lorry is bought and sold or otherwise disposed of within the same
financial year.

(4) Chiniot Trucking Limited does not keep separate ledger accounts for each
individual lorry.
Required
(a) Write up the following accounts for the year to 30 April 2015:
(i) lorries account
(ii) lorries disposal account
(iii) allowance for depreciation on lorries account.
(b) Show how the lorries account and the allowance for depreciation account would
be presented in Chiniot Trucking Limited’s statement of financial position as at 30
April 2015.
2.5 ASLAM, BASHIR & COMPANY

The accountant of Aslam, Bashir & Company, a partnership concern, has finalised the
draft financial statements for the year ended June 30, 2015. Mr Bashir is not satisfied
with the non-current assets reported in the above financial statements and have asked
you to review the same.
The details of non-current assets appearing in the financial statements are as follows:
Useful Cost (Rs.) Accumulated depreciation

life (Rs.)
(years)
2015 2014 2015 2014
Land 5,000,000 5,000,000 - -
Building 20 7,250,000 7,000,000 4,562,500 4,200,000
Plant & 15 11,910,000 10,000,000 3,994,000 3,200,000
Machinery
Furniture & 10 3,075,000 3,000,000 2,257,500 1,950,000
Fixtures
Depreciation is provided on straight line basis from the date of purchase to the date of
sale.
An analysis of the working papers has revealed that the details of additions/deletions to
non-current assets are as follows:
(i) In January 2015, Rs. 200,000 were spent on the extension of the underground
water tank and Rs. 50,000 were spent on fumigation of the entire building.
(ii) On March 31, 2015 a generator which had completed five years of its life was
replaced by another generator. The cost of new generator was Rs. 2,000,000
whereas the supplier allowed 10% of the cost of the old generator as trade-in-
allowance. As a result, the company made a payment of Rs. 1,910,000 only.
(iii) On July 1, 2014 fully depreciated furniture costing Rs. 400,000 was repaired at a
cost of Rs. 75,000. It is expected that the repairs would allow the furniture to be
used for the next five years.
Required:
Prepare necessary journal entries to record the required corrections.

Questions
2.6 AZFAR AND COMPANY

The written down value of plant and machinery of Azfar and Company as at 30 June
2015 is Rs. 831,128.
Following additional information is also available:
(i) On 1 July 2011, second-hand machinery was purchased for Rs. 300,000. An
amount of Rs. 200,000 was spent on its overhauling, before use.
(ii) On 1 January 2012 machinery costing Rs. 250,000 was purchased.
(iii) The machinery purchased on 1 July 2011 became obsolete and was sold for Rs.
100,000 on 1 January 2014. On the same date, new machinery was purchased at
a cost of Rs. 600,000.
(iv) Machinery purchased on 1 January 2012 was sold on 30 June 2015 at its book
value plus Rs. 50,000.
Azfar and Company provides depreciation on machinery @ 15% on written down value.
Depreciation on addition / deletion is provided in proportion to the period of use.
Required:
(a) Machinery Account from 1 July 2013 to 30 June 2015
(b) Machinery Disposal Account for the years ended 30 June 2014 and 2015
2.7 NAVEED ENTERPRISES

Naveed Enterprises commenced business on 01 July 2012. Certain information about
their vehicles, for the years ended 30 June 2014 and 2015 can be ascertained from the
following ledger accounts:
Accumulated depreciation on vehicles All amount in Rupees
28-02-12 Vehicle 01-07-11 Balance b/d 1,360,000
disposal
account 435,467
30-06-12 Balance c/d 2,160,800 30-06-12 Dep. for the year 1,236,267
2,596,267 2,596,267
30-04-13 Vehicle 01-07-12 Balance b/d 2,160,800
disposal
account 560,000
30-06-13 Balance c/d 3,025,040 30-06-13 Dep. for the year 1,424,240
3,585,040 3,585,040
Vehicle disposal account All amount in Rupees

28-02-12 Cost at 01-07- 28-02-12 Accumulated 435,467
2012 1,420,000 Dep.
28-02-12 Profit on 28-02-12 Cash received 1,150,000
disposal 165,467
1,585,467 1,585,467
30-04-13 Cost at 01-07- 30-04-13 Accumulated Dep . 560,000
2012 1,200,000
30-04-13 Cash received 500,000
30-04-13 Loss on disposal 140,000
1,200,000 1,200,000

Following further information is available in respect of the vehicles for the last three
years (01-07-2012 to 30-06-2015):
(i) Depreciation is being provided at the rate of 20% per annum on diminishing
balance method.
(ii) Accumulated depreciation brought down on 1 July 2013 represents depreciation
for the whole year on vehicles bought on 1 July 2012.
(iii) Two vehicles were purchased on 1 November 2013 and 1 September 2014.
Required:
Prepare Vehicles (Asset) Account for the years ended 30 June 2014 and 2015.
2.8 MJ ENTERPRISES
The following information is available in respect of non-current assets of MJ Enterprises
(MJE):
(i) The opening balances of cost and accumulated depreciation of non-current
assets as on January 1, 2015 were Rs. 100,000 and Rs. 33,000 respectively.
(ii) Assets costing Rs. 20,000 were acquired on July 1, 2014. The remaining non-
current assets were acquired when MJE commenced business on January 1,
2011. There were no disposals of non-current assets up to January 1, 2015.
(iii) MJE provides for depreciation on the cost of assets at the rate of 10% per annum
using the straight line basis. Depreciation is calculated on a monthly basis.
(iv) Assets acquired on January 1, 2011 whose net book value on June 30, 2015 was
Rs. 2,750 were sold for Rs. 1,500.
(v) On July 1, 2015, an asset which was acquired at a cost of Rs. 2,000 when MJE
commenced business, was exchanged for a new asset. The balance of the
purchase price was settled with a cheque for Rs. 800. The list price of the new
asset was Rs. 1,200.
(vi) On October 1, 2015 MJE transferred to its factory an asset which had been
included in its trading inventory and which bore a price label of Rs. 15,400 in the
showroom. MJE makes a gross profit of 40% of cost, on sale of such assets.
Required:
Prepare the following ledger accounts for the year ended December 31, 2015:
(a) Non-current assets
(b) Accumulated depreciation
(c) Profit/loss on sale of non-current assets

Questions
2.9 ZIAKOT STEEL WORKS

Ziakot Steel Works, a sole proprietorship, provides depreciation on plant and
machinery at 20% per annum on diminishing balance method.
On July 1, 2014 the balances in the plant and machinery and accumulated depreciation
accounts were Rs. 712,000 and Rs. 240,000 respectively.
Depreciation is provided from the month of purchase till the month of disposal.
It was discovered during 2014-2015 that:
(a) Rs. 25,000 being ordinary repairs to machinery, incurred on October 1, 2012 had
been capitalised incorrectly.
(b) A machine which was purchased on January 1, 2012 for Rs. 100,000 was traded-
in, on March 31, 2014 for a new and more sophisticated machine. The disposal
was not recorded and the new machine was capitalised at Rs. 120,000 being the
net amount paid to the supplier. The trade-in allowance amounted to Rs. 50,000.
It was decided to correct the above mistakes while finalising the accounts for the year
ended June 30, 2015.
Only one machine was purchased during the year ended June 30, 2015 costing Rs.
60,000. The machine was received in the factory on October 1, 2014 and was installed
on January 1, 2015.
Required
Plant and machinery account and accumulated depreciation account for the year ended
June 30, 2015. (Show all workings)

CHAPTER 3: IFRS 15: REVENUE FROM CONTRACT WITH CUSTOMER
3.1 Parvez limted

The following transactions took place at Parvez Limited (PL).
(1) On 5 March 2017 PL sold goods to a bank for Rs.18m cash and agreed to
repurchase the goods for Rs.19m cash on 5 July 2017. The goods will be shifted
to a storage facility under bank’s control and security.
(2) On 31 March PL’s car manufacturing division consigned several vehicles to
independent dealers for sale to third parties. The sales price to the dealer is PL’s
list price at the date of sale to third parties. If a vehicle is unsold after six months,
the dealer has a right to return the vehicle to PL within next fifteen days.
Required
Discuss how the above transactions should be accounted for in the books of accounts
of Parvez Limited.
3.2 Sachal LIMITED

Sachal Limited (SL):
(a) Sells standard computer software package meant for small and medium sized
restaurant management. This software package is sold:
x at price of Rs.1.5 million payable before delivery,
x with thirty days trial time, and
x without any maintenance support after trial time
As per practice, it takes around six months for the customers to use the package
independent of any support from SL. Practically, SL has to provide on-site support
service for at least six months to almost all customers free-of-cost. However, in
case of customer’s request for support beyond six months, SL provides services
under a formal paid service contract.
(b) Provides maintenance and support for the above standard software package at a
price of Rs.0.3 million per annum.
(c) Provides designing and development of customized software to customers.
Payment is made monthly by customers on the basis of chargeable hours of
developers of SL. First year maintenance service is provided free-of-cost.
Subsequent maintenance service is provided at the rate of 10% of the total contract
price. Thereafter, for next three years maintenance service is provided at 5% of the
contract price per annum.
Required
Explain the considerations to be taken into account in determining accounting for
revenue by Sachal Limited.

Questions
CHAPTER 4 – PREPARATION OF FINANCIAL STATEMENTS

4.1 SAGODHA SPICES LIMITED
The following trial balance has been extracted from the books of account of Sagodha
Spices Limited, a limited liability company, at 31 March 2015.
Rs. 000 Rs. 000
Administrative expenses 210
Share capital (ordinary shares of Rs.1 fully paid) 600
Trade receivables 470
Bank overdraft 80
Income tax (overprovision in 2014) 25
Retirement benefit liability 180
Distribution costs 420
Non-current asset investments 560
Investment income 75
Plant and equipment
At cost 750
Accumulated depreciation (at 31 March 2015) 220
Accumulated profit (at 1 April 2014) 240
Purchases 960
Inventories (at 1 April 2014) 140
Trade payables 260
Revenue 1,950
Dividend paid 120
——— ———
3,630 3,630
════ ════
Additional information
(1) Inventories at 31 March 2015 were valued at Rs.150,000.
(2) The following items are already included in the balances listed in the above trial
balance.
Distribution Administrative
costs expenses
Rs.000 Rs.000
Depreciation (for year to 31 March 2015) 27 5
Hire of plant and machinery 20 15
Auditors’ remuneration – 30
(3) The income tax expense based on the profit on ordinary activities is estimated to
be Rs.54,000.
(4) The retirement benefit liability is to be increased by Rs.16,000. The increase
should be charged to administrative expenses. No retirement benefits are
expected to be paid for the foreseeable future.
Required:
Prepare the company’s statement of comprehensive income for the year to 31 March
2015 and a statement of financial position at that date in accordance with IAS 1
Presentation of Financial Statements.

4.2 KASUR CHEMICALS LIMITED

The list of balances of Kasur Chemicals Limited shows the following balances at 31
December 2015.
Dr Cr
Rs.000 Rs.000
Share capital (600,000 shares) 300
Share premium 20
Revaluation reserve 20
Accumulated profit 1 January 2015 40
Inventory (goods for resale) at 1 January 2015 60
Revenue 1,000
Purchases 540
Purchases returns 26
Sales returns 28
Carriage outwards 28
Warehouse wages 80
Sales representatives salaries 60
Administrative wages 40
Warehouse plant and equipment – cost 126
Accumulated depreciation – 1 January 2015 50
Delivery vehicle hire 20
Goodwill 90
Distribution expenses 10
Directors’ salaries (charge to administrative expenses) 30
Rental income 16
Cash at bank 60
Trade payables 60
——— ———
1,532 1,532
════ ════
(1) Inventory (goods for resale) at 31 December 2015 amounted to Rs.100,000.
(2) Annual depreciation on warehouse plant and equipment of Rs.32,000 should be
provided.
(3) Income tax for 2015 should be taken as Rs.50,000.
Required:
Prepare the company’s statement of comprehensive income for the year to 31
December 2015 and a statement of financial position at that date in accordance with
IAS 1 Presentation of Financial Statements.

Questions
4.3 OKARA HAIR PRODUCTS LIMITED

The following draft statement of comprehensive income has been prepared for Okara
Hair Products Limited for the year ended 30 June 2015.
Rs.000 Rs.000
Opening inventory 78 Sales 2,282
Purchases 1,055 Sales returns (66)
Purchase returns (25)
Gross profit c/d 1,170 Closing inventory 62
2,278 2,278
Wages and salaries 160 Gross profit b/d 1,170

Office expenses 236 Dividends received 20
Depreciation:
Plant and machinery 84
Delivery vans 48
Office furniture 17
Directors’ salaries 163
Selling expenses 95
Rent of plant and machinery 21
Factory expenses 109
Legal expenses 25
Interest charges 70
Net profit c/d 162
1,190 1,190
Taxation on profits 54 Net profit b/d 162

Net profit after tax 116 Tax over-provided in
the previous year 8
170 170
Additional information:
(1) Directors’ salaries are classified as administrative expenses.
(2) Other wages and salaries are apportioned 70% to distribution costs and 30% to
administrative expenses.
(3) Okara Hair Products Limited analyses expenses by function.
Required
Prepare the company’s statement of comprehensive income for the year to 30 June
2015 in accordance with IAS 1 Presentation of Financial Statements.

4.4 THATTA TOURS LIMITED

The trial balance of Thatta Tours Limited as at 31 December 2015 is as follows:
DR CR
Rs.000 Rs.000
Ordinary share capital (Rs.1 shares) 980
Cash at bank 23
Tax (over-provision in 2014) 25
10% loan notes (repayable in 2020) 300
General administrative expenses 46
Administrative salaries 24
General distribution expenses 25
Distribution salaries 10
Directors’ remuneration 35
Loan notes interest paid 15
Development costs (incurred on 31 Dec. 2015) 30
Dividend paid 30
Dividends received 20
Investments 45
Land and buildings – at cost 4,200
– accumulated depreciation at 1 January 2015 2,600
Plant and machinery – at cost 200
– accumulated depreciation at 1 January 2015 75
Retained earnings at 1 January 2015 64
Purchases and sales 405 920
Profit on disposal of factory 60
Trade receivables and trade payables 16 100
Inventory at 1 January 2015 35
Bad debts 5
5,144 5,144
Additional information:
(1) Closing inventory is valued at the lower of cost or net realisable value. At 31
December 2015 it amounted to Rs.55,000.
(2) Non-current assets are depreciated on a straight-line basis assuming no residual
value. The following depreciation rates are to be applied:
Buildings 5%
Plant and machinery 20%
The depreciation charge for the year is to be apportioned as follows:
Distribution costs Administrative expenses
Buildings 70% 30%
Plant and machinery 75% 25%
The cost of the land was Rs.3,200,000. There were no purchases or sales of non-
current assets during the year.
(3) Development costs are an intangible asset and are to be amortised (depreciated)
over a three-year period. The amortisation (depreciation) charge is to be
allocated to cost of sales.
(4) The profit (after tax) on disposal of the factory is considered to be material
amount for which separate disclosure is required.
(5) Tax on the profits for the year is estimated at Rs.95,000.

Questions
(6) Directors' remuneration is to be analysed between distribution costs and

administrative expenses as follows:
Distribution Rs.15,000
Administration Rs.20,000
Required
Prepare the company’s statement of comprehensive income for the year ended 31
December 2015 and statement of financial position as at 31 December 2015.
4.5 BSZ LIMITED

The chief accountant at BSZ Limited left the company suddenly for urgent family
reasons part way through the year end adjustment process.
The following trial balance has been extracted after some of the closing adjustments
but before others for the year ended 30 June, 2015:
Dr. Cr.
Rs. m Rs. m
Cash at bank 29
Inventories (closing) 90
Accounts receivable 60
Provision for bad debts as at 1 July 2014 1
Advances to suppliers 16
Advances to staff 6
Short term deposits 11
Prepayments 16
Property, plant and equipment – cost
Freehold land and buildings 405
Furniture and fixtures 27
Machines 85
Computer equipment 10
Accumulated depreciation as at 1 July 2014
Building 26
Machines 27
Furniture and fixtures 8
Computer equipment 2
Short term loan 114
Accounts payable 75
Accrued liabilities 7
Taxation liability 17
Share capital 400
Accumulated profits 65
Suspense account 13
755 755

Additional Information:
(i) The depreciation charge for the year has not yet been calculated. The company
uses the straight line method for charging depreciation. The building is
depreciated at a rate of 5% whereas 10% is charged on machines, furniture and
fixtures and computer equipment.
(ii) The land element of “freehold land and buildings” cost Rs. 255 million. This is to
be revalued upwards by Rs. 120 million.
(iii) The buildings element of “freehold land and buildings” includes costs associated
with the construction of an extension to the building. Construction of the
extension commenced on 1 March 2015 and is expected to be completed on 30
September 2015. The cost incurred during the year i.e. Rs. 20 million was
capitalised on 30 June 2015.
(iv) The cost of furniture and fixtures includes additions of Rs. 8 million made on 1
April 2015.
(v) A machine was sold on 28 February 2015 at a price of Rs. 13 million. The
machine cost Rs. 15 million. The accumulated depreciation on this machine as at
1 July 2014 was Rs. 4 million. The only entry made so far has been to credit the
sale proceeds to a suspense account.
(vi) 5 % of the receivables are considered doubtful.
(vii) Advances given to suppliers include an amount of Rs. 4.0 million paid for
goods which will be supplied on 31 December 2017.
Required:
Prepare the statement of financial position as at 30 June 2015.
4.6 YASIR INDUSTRIES LIMITED

The following trial balance related to Yasir Industries Limited (YIL) for the year ended
June 30, 2015:
Dr Cr
Rs. m Rs. m
Share capital - 120.00
Retained earnings - 10.20
Sales - 478.40
Purchases 175.70 -
Production labour 61.00
Manufacturing overheads 39.00
Inventories (July 1, 2014) 38.90
Administrative expenses 40.00 -
Distribution expenses 19.80 -
Financial charges 0.30 -
Cash and bank - 13.25
Trade creditors - 30.40
Accrued expenses - 16.20
Loan - 120.00
Suspense account 30.00 -

Questions
Leasehold property - at cost 230.00 -

Machines – at cost 168.60 -
Software – at cost 20.00 -
Acc. depreciation – Leasehold property (June 30, 2015) - 40.25
Acc. depreciation – Machines (June 30, 2015) - 48.60
Acc. amortization – Software (June 30, 2015) - 12.00
Trade receivables 66.00 -
889.30 889.30
Additional Information:
(i) Sales include an amount of Rs. 27 million, made to a customer under sale
or return agreement. The sale has been made at cost plus 20% and the
expiry date for the return of these goods is July 31, 2015.
(ii) The value of inventories at June 30, 2015 was Rs. 42 million.
(iii) A fraud of Rs. 30 million was discovered in March 2015. A senior employee of
the company who left in February 2015, had embezzled the funds from YIL’s
bank account. The chances of recovery are remote. The amount is presently
appearing in the suspense account.
(iv) The loan was taken on January 1, 2015 YIL. Interest is paid at 10% per
annum in arrears. No amount has been recognised for this interest.
(v) Financial charges comprise bank charges and bank commission.
(vi) The provision for current taxation for the year ended June 30, 2015 after
making all the above adjustments is estimated at Rs. 16.5 million.
(vii) On July 1, 2014, the leasehold property having a useful life of 40 years
was revalued at Rs. 238 million. No adjustment in this regard has been made
in the books.
(viii) Depreciation of leasehold property is charged using the straight line method.
50% of depreciation is allocated to manufacturing, 30% to administration and
20% to selling and distribution.
Required:
Prepare the:
(a) The statement of financial position as of June 30, 2015.
(b) The statement of comprehensive income for the year ended June 30, 2015.

CHAPTER 5 –IAS 7: STATEMENT OF CASH FLOWS
5.1 TRANGO LIMITED

The following information has been extracted from the financial statements of Trango
Limited for the year ended 31 December 2015.
Statement of comprehensive income for the year ended 31 December 2015
Rs.
Sales 905,000
Cost of sales (311,000)
Gross profit 594,000
Loss on disposal of non-current asset (9,000)
Wages and salaries (266,000)
Other expenses (including depreciation Rs.46,000) (193,000)
126,000
Interest charges (24,000)
Profit before tax 102,000
Tax on profit (38,000)
Profit after tax 64,000
The asset disposed of had a carrying amount of Rs. 31,000 at the time of the sale.
Extracts from the statements of financial position:

At At
1 January 31 December
2015 2015
Rs. Rs.
Trade receivables 157,000 173,000
Inventory 42,000 38,000
Trade payables 43,600 35,700
Accrued wages and salaries 4,000 4,600
Accrued interest charges 11,200 10,000
Tax payable 45,000 41,000
Required
Present the cash flows from operating activities as they would be presented in a
statement of cash flows:
(a) using the direct method
(b) using the indirect method.

Questions
5.2 NARDONE LIMITED

The following information has been extracted from the draft financial information of
Nardone Limited.
Rs.000 Rs.000
Sales revenue 490
Administration costs (86)
Distribution costs (78)
(164)
Operating profit 326
Interest expense (23)
Profit before tax 303
Taxation (87)
Profit after tax 216
Dividends paid (52)
Retained profit for the year 164
Statements of financial position

31 December 2015 31 December 2014
Rs.000 Rs.000 Rs.000 Rs.000
Non-current assets (see 1,145 957
below)
Current assets:
Inventory 19 16
Receivables 38 29
Bank 19 32
76 77
Total assets 1,221 1,034
Share capital 323 232

Revaluation reserve 170 0
Retained earnings 553 389
1,046 621
Non-current liabilities:
Long-term loans 70 320
Current liabilities:
Trade payables 12 17
Tax payable 93 76
105 93
Total equity and liabilities 1,221 1,034
Note on non-current assets
Land and Fixtures
buildings Machinery &fittings Total
Rs.000 Rs.000 Rs.000 Rs.000
Cost or valuation
At 31 December 2014 830 470 197 1,497
Additions - 43 55 98
Disposals - (18) - (18)
Adjustment on 70 - - 70
revaluation
At 31 December 2015 900 495 252 1,647

Land and Fixtures

buildings Machinery &fittings Total
Rs.000 Rs.000 Rs.000 Rs.000
Depreciation
At 31 December 2014 (90) (270) (180) (540)
Charge for the year (10) (56) (8) (74)
Disposals - 12 - 12
Adjustment on 100 - - 100
revaluation
At 31 December 2015 0 (314) (188) (502)
Carrying amount:
At 31 December 2014 740 200 17 957
At 31 December 2015 900 181 64 1,145
You have been informed that included within distribution costs is Rs.4,000 relating to
the loss on a disposal of a non-current asset.
Required
Prepare a statement of cash flows for Nardone Limited for the year ended 31
December 2015.
5.3 HOT SAUCE LIMITED

Hot Sauce Limited summarised final accounts are as follows
Rs.000 Rs.000 Rs.000 Rs.000
Non-current assets:
Plant and machinery at cost 2,700 3,831
Accumulated depreciation (748) (1,125)
Carrying amount 1,952 2,706
Current assets:
Inventory 203 843
Receivables 147 184
Bank 51 -
401 1,027
Ordinary share capital (Rs1 740 940
shares)
Share premium account 0 100
Retained earnings 671 1,034
1,411 2,074
Non-current liabilities:
Loans 320 150
Bank overdraft 0 766
Trade payables and 152 141
accruals
Current taxation 470 602
622 1,509

Questions
Statement of comprehensive income for year ended 31 December 2015

R.s 000
Profit before tax 1,195
Taxation (602)
Dividend payments during the year were Rs.230,000.
The following information is also available:
(1) The only new loan raised during the year was a five-year bank loan amounting to
Rs.65,000.
(2) Interest charged during the year was Rs.156,000. Interest accrued was
Rs.24,000 last year and Rs.54,000 this year.
(3) Depreciation charged during the year amounted to Rs.401,000. This does not
include any profit or loss on disposal of non-current assets.
(4) During the year plant which originally cost Rs.69,000 was disposed of for
Rs.41,000.
(5) During the year the company issued 200,000 new shares.
Required
Prepare a statement of cash flows.
5.4 QUETTA TRACK LIMITED

The financial statements of Quetta Track Limited, a limited liability company, at 30 June
were as follows.
2015 2014
Rs.000 Rs.000 Rs.000 Rs.000
ASSETS
Non-current assets
Property cost 22,000 12,000
Depreciation (4,000) (1,000)
——— 18,000 ——— 11,000
Plant and equipment
Cost 5,000 5,000
Depreciation (2,250) (2,000)
——— 2,750 ——— 3,000
——— ———
20,750 14,000
Current assets
Inventories 16,000 11,000
Cash and cash equivalents – 1,300
——— 25,950 ——— 15,000
——— ———
——— ———
Rs.000 Rs.000 Rs.000 Rs.000

EQUITY AND LIABILITIES
Capital and reserves
Equity capital 3,000 3,000
Accumulated profits 16,200 3,800
——— ———
19,200 6,800

Non-current liabilities
Loan 6,000 10,000
Current liabilities
Operating overdraft 11,000 –
Income tax payable 1,800 1,000
Accrued interest 700 200
——— 21,500 ——— 12,200
——— ———
——— ———
Statement of comprehensive income (extracts)
2015 2014
Rs.000 Rs.000
Operating profit 15,400 5,900
Financing cost (Interest) (1,000) (1,400)
——— ———
Profit before tax 14,400 4,500
Income tax expense (2,000) (1,500)
——— ———
Net profit for the year 12,400 3,000
——— ———
Equipment of carrying amount Rs.250,000 was sold at the beginning of 2015 for
Rs.350,000. This equipment had originally cost Rs.1,000,000.
In recent years, no dividends have been paid.
Required:
Prepare a statement of cash flows, under the indirect method, for the year ended 30
June 2015.
5.5 MARDAN SOFTWARE LIMITED

The following are the summarised accounts of Mardan Software Limited, a limited
liability company.
Statements of financial position at 31 December

2014 2015
Rs.(000) Rs.(000) Rs.(000) Rs.(000)
ASSETS
Non-current assets
Plant and equipment 2,086 2,103
Fixtures and fittings 1,381 1,296
——— ———
3,467 3,399
Current assets
Inventory 1,292 1,952
Trade receivables 713 1,486
Short term investment 1,050 600
Cash 197 512
——— 3,252 ——— 4,550
——— ———
——— ———
Equity capital 4,200 4,500

Questions
Share premium reserve 800 900

Accumulated profits (Note 1) 431 1,180
——— ———
5,431 6,580
Current liabilities
Dividend payable 132 154
Income tax payable 257 312
——— 1,288 ———
1,369
——— ———
——— ———
Statement of comprehensive income (extracts) for the year ended 31 December 2015
Rs.(000)
Profit before taxation 1,381
Income tax expense (310)
Net profit for the period 1,071
Note 1 Accumulated profits
Rs.(000)
Balance at 1 January 431
Net profit for period 1,071
Dividend for the year (322)
Balance at 31 December 1,180
Further information:
(1) Plant and equipment with a carrying amount of Rs184,000 was disposed of for
Rs203,000, whilst a new item of plant was purchased for Rs312,000
(2) Fixtures and fittings with a carrying amount of Rs100,000 were disposed of for
Rs95,000;
(3) Depreciation recognised on fixtures and fittings amounted to Rs 351,000.
(4) Dividend for the year was declared during the year. Dividend payable in the
statements of financial position at each year end relate to dividends declared in
that year but not paid over to shareholders by the reporting date.
Required:
Prepare a statement of cash flows for the year ended 31 December 2015 in
accordance with IAS 7: Statement of cash flows

5.6 TARBELA TRADERS

Tarbela Traders is the trading name of a sole trader.
The statements of financial position of Tarbela Traders at the end of two consecutive
financial years were:
Statements of financial position at

Rs.000 Rs.000 Rs.000 Rs.000
Non-current assets (at WDV)
Premises 37,000 38,000
Equipment 45,800 17,600
Motor vehicles 18,930 4,080
——— 101,730 ——— 59,680
Investments 25,000 17,000
———— ————
126,730 76,680
Current assets
Trade receivables and prepayments 11,960 14,410
Short-term investments 4,800 3,600
Cash and bank balances 700 1,800
——— 37,130 ——— 47,310
———— ————
Total assets 163,860 123,990
———— ————

Opening capital 75,040 67,940
Capital introduced/(withdrawn) (6,500) 4,000
Profit/(loss) for year 25,200 15,300
Drawings (15,130) (12,200)
———— ————
Closing capital 78,610 75,040
Interest-bearing borrowings 25,000 28,000
Current liabilities
Trade payables and accrued expenses 32,050 20,950
Bank overdraft 28,200 –
———— 60,250 ———— 20,950
———— ————
163,860 123,990
═════ ═════
Profit for the year ended 31 December 2015 (Rs.25,200,000) is after accounting for
Rs.000
Depreciation
Premises 1,000
Equipment 3,000
Motor vehicles 3,000
Profit on disposal of equipment 430
Loss on disposal of motor vehicle 740
Interest expense 3,000

Questions
The written down value of the assets at date of disposal was:

Rs.000
Equipment 5,200
Motor vehicles 2,010
Interest accrued at 31 December 2015 is Rs.400,000.
Required:
Prepare a statement of cash flows for the year ended 31 December 2015. Assume that
short-term investments are cash equivalents.
5.7 THE SINDH ROBOTICS COMPANY

The statements of financial position and statement of comprehensive incomes of The
Sindh Robotics Company for two consecutive financial years are shown below.

Cost Dep’n Net Cost Dep’n Net
Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
Non-current assets
Land 43,000 – 43,000 63,000 – 63,000
Buildings 50,000 10,000 40,000 90,000 11,000 79,000
Plant 10,000 4,000 6,000 11,000 5,000 6,000
———— ———— ———— ———— ———— ————
103,000 14,000 89,000 164,000 16,000 148,000
———— ———— ———— ————
Investments 50,000 80,000
Current assets
Bank 3,000 –
———— 98,000 ———— 115,000
———— ————
237,000 343,000
———— ————
Capital
Issued shares of
Rs. 1 each 40,000 50,000
Share premium 12,000 14,000
Revaluation surplus – 20,000
Accumulated profit 25,000 25,000
———— ————
77,000 109,000
10% loan borrowings 100,000 150,000
Current liabilities
Dividend payable 20,000 20,000
Bank overdraft – 4,000
———— ————
60,000 84,000
———— ————
237,000 343,000
———— ————

Statements of comprehensive incomes

2013 2014
Rs.000 Rs.000
Revenue 200,000 200,000
Cost of sales (100,000) (120,000)
———— ————
Gross profit 100,000 80,000
Distribution and administration expenses (50,000) (47,000)
———— ————
50,000 33,000
Interest (10,000) (13,000)
———— ————
Net profit for year 40,000 20,000
———— ————
Only one dividend is declared each year which is paid in the following year. No sales
of non-current assets have occurred during the relevant period. Ignore taxation.
Required:
Prepare a statement of cash flows for the year ended 31 December 2014 using the
direct method.
5.8 ABIDA
Abida made a net profit of Rs. 256,800 for the year ended June 30, 2015 after charging
depreciation of Rs. 17,500 and loss on disposal of furniture of Rs. 6,800. The sale
proceeds of the furniture were Rs. 12,000.
During the year, the net book value of non-current assets decreased by Rs. 7,400;
receivables increased by Rs. 11,700; inventories decreased by Rs. 21,600 and
creditors increased by Rs. 8,900. A long-term loan of Rs. 75,000 was repaid during the
year and Abida withdrew Rs. 120,000 for his own use.
Required:
Prepare the statement of cash flows for the year ended June 30, 2015.

Questions
5.9 MR. MOOSANI
The comparative statements of financial position of Mr. Moosani show the following
information:
December 31
2015 2014
Rs. Rs.
Cash 5,200 41,400
Accounts receivable 31,700 21,500
Inventory 25,000 19,400
Investments - 16,900
Furniture 80,000 64,000
Equipment 86,000 43,000
Total 227,900 206,200
Allowance for doubtful accounts 6,500 9,700
Accumulated depreciation on equipment 24,000 18,000
Accumulated depreciation on furniture 8,000 15,000
Trade creditors 10,800 6,500
Accrued expenses 4,300 10,800
Bills payable 6,500 8,600
Long-term loans 31,800 53,800
Capital 136,000 83,800
Total 227,900 206,200
Additional data related to 2015 is as follows:
(i) Equipment that had cost Rs. 23,000 and was 40% depreciated at the time of
disposal was sold for Rs. 6,500.
(ii) Payments against long-term loans amounted to Rs. 22,000 of which Rs. 12,000
was paid by Mr. Moosani out of his personal account.
(iii) On January 1, 2015, the furniture was completely destroyed by a fire. Proceeds
received from the insurance company amounted to Rs. 60,000.
(iv) Investments were sold at Rs. 7,500 above their cost.
(v) Mr. Moosani withdraws Rs. 15,000 each month for his personal use.
Required:
Prepare a statement of cash flows for the year ended 31 December 2015.

5.10 SAKHAWAT HUSSAIN
The statements of financial position of Sakhawat Hussain as at December 31, 2015

and 2014 are as follows:
2015 2014
Rs. Rs.
Current assets 4,750,000 2,850,000
Investments 2,600,000 2,500,000
Non-current assets 9,750,000 9,600,000
Accumulated depreciation (2,950,000) (2,450,000)
14,150,000 12,500,000
Non-current liability (loan) 2,000,000 2,000,000

Current liabilities 1,850,000 1,450,000
Interest liability 200,000 150,000
Capital 9,000,000 8,000,000
Profit and loss account 1,100,000 900,000
14,150,000 12,500,000
Other information for the year 2015 is as follows:
(i) Investments costing Rs. 250,000 were sold for Rs. 320,000.
(ii) Fully depreciated furniture costing Rs. 200,000 was written-off.
(iii) Non-current assets costing Rs. 960,000 with a net book value of Rs. 160,000
were sold for Rs. 250,000.
(iv) Interest amounting to Rs. 180,000 was paid during the year.
(v) Sakhawat Hussain withdrew Rs. 1,200,000 from the profits of 2014 and 2015.
(vi) 20% of the opening and closing balances of current assets are represented by
cash.
Required:
Prepare a statement of cash flows for the year ended December 31, 2015.

Questions
5.11 MR JUNAID JANJUA
Mr Junaid Janjua has provided you the following statements of financial position and
statement of comprehensive income.
Statements of financial position as on December 31, 2015
2015 2014
Rupees Rupees
Cash 145,000 32,000
Accounts receivable 280,000 104,000
Long-term investments 220,000 170,000
Inventory 424,000 200,000
Prepaid insurance 24,000 36,000
Office supplies 14,000 7,000
Land 1,810,000 2,500,000
Building 2,800,000 2,300,000
Accumulated depreciation (890,000) (720,000)
Equipment 1,200,000 1,150,000
Accumulated depreciation (380,000) (350,000)
Total assets 5,647,000 5,429,000
Accounts payable 158,000 263,000

Wages payable 40,000 24,000
Short-term loans 580,000 580,000
Long-term loans 985,000 1,160,000
Capital 3,884,000 3,402,000
Total liabilities and equity 5,647,000 5,429,000
Statement of comprehensive income for the year ended December 31, 2015
2015
Rupees
Sales revenue 9,280,000
Cost of goods sold (6,199,000)
Gross profit 3,081,000
Operating expenses
Selling expenses 634,000
Administrative expenses 1,348,000
Depreciation expenses 230,000
(2,212,000)
Income from operations 869,000
Other revenues/expenses
Gain on sale of land 64,000
Gain on sale of long term investment 32,000
Loss on sale of equipment (15,000)
81,000
Net income 950,000
Drawings (568,000)
Retained earnings 382,000

Notes:
(a) Part of the long term loan amounting to Rs. 100,000 was paid by Mr. Junaid from
his personal account.
(b) Long term investments costing Rs. 100,000 were sold during the year.
(c) Depreciation charged during the year on equipment amounted to Rs. 60,000.
Equipment having a book value of Rs. 75,000 was sold during the year.
Required:
Prepare a statement of cash flows for the year ended December 31, 2015.
5.12 AMIN INDUSTRIES

The statements of financial position of Amin Industries as at 31 August 2014 and 2015
are as follows:
2015 2014 2015 2014
Rs. Rs. Rs. Rs.
Capital 33,433,000 27,942,000 Non-
current
assets –
book value 15,172,000 12,346,000
Current Current
liabilities assets
Short term Investments
finance 2,545,000 1,616,000 4,911,000 -
Creditors 3,457,000 2,850,000 Inventory 12,178,000 14,950,000
6,002,000 4,466,000 Trade debts
– net of
provision
for bad
debts 6,732,000 4,887,000
Bank 442,000 225,000
24,263,000 20,062,000
39,435,000 32,408,000 39,435,000 32,408,000
The following information is also available:
Rupees
Profit during the year ended 31 August 201 161,000
Mr. Amin’s withdrawals during the year 120,000
Accumulated depreciation on non-current assets – 31 August 2014, 605,000
Accumulated depreciation on non-current assets – 31 August 2015 470,000
Provision for bad debts – 31 August 2014 385,000
Provision for bad debts – 31 August 2015 484,000
During the year non-current assets costing Rs. 1,500,000 with a carrying amount of
Rs. 867,000 were sold for Rs. 1,284,000.
Required:
Prepare a statement of cash flows for the year ended 31 August 2015. Show necessary
workings.

Questions
CHAPTER 6 – INCOME AND EXPENDITURE ACCOUNTS

6.1 GILTAN GOLF CLUB
The treasurer of the Giltan Golf Club has prepared the following receipts and payments
account for the year ended 31 March 2016.
Rs.(000) Rs.(000)
Balance at 1 April 2015 682 Functions 305
Subscriptions 2,930 Repairs 146
Functions 367 Telephone 67
Sale of land 1,600 Extension of club house 600
Bank interest 60 Furniture 135
Bequest (legacy) 255 Heat and light 115
Sundry income 46 Salary and wages 2,066
Sundry expenses 104
Balance at 31 March 2016 2,402
5,940 5,940
(a) Subscriptions received included Rs.65,000 which had been in arrears at 31
March 2015 and Rs.35,000 which had been paid for the year commencing 1 April
2016.
(b) Land sold had been valued in the club's books at cost Rs.500,000.
(c) Accrued expenses
31 March 2015 31 March 2016
Rs.(000) Rs.(000)
Heat and light 32 40
Wages 12 14
Telephone 14 10
—— ——
58 64
—— ——
(d) Depreciation is to be charged on the original cost of assets appearing in the
books at 31 March 2016 as follows:
Buildings 5%
Fixtures and fittings 10%
Furniture 20%
(e) The following balances are from the club's books at 31 March 2015:
Rs.(000)
Land at cost 4,000
Buildings at cost 3,200
Buildings allowance for depreciation 860
Fixtures and fittings at cost 470
Fixtures allowance for depreciation 82
Furniture at cost 380
Furniture allowance for depreciation 164
Subscriptions in arrears (including Rs.15,000 irrecoverable - 80
member had emigrated)
Subscriptions in advance 30
Required:
Prepare an income and expenditure account for the year ended 31 March 2016 and a
Statement of financial position as at that date.

6.2 LANGTON HOCKEY CLUB

The Langton Hockey club does not have any formal accounting records but the
following information is available.
(1) The payments that have been made by the club for the year ending 30 June 2016
are as follows:
Rs.(000)
Purchase of second hand table tennis table 250
Rent 600
Tea stall purchases 900
Annual fair expenses 1,450
Outings expenses 370
Prizes for whist evenings 90
Repairs to snooker table 35
Refreshments at social evenings 240
(2) The club's income, apart from annual subscriptions, is as follows:
Rs.(000)
Contributions to outings 300
Takings at the annual fair 2,150
The club also run a tea stall in the village car park every Sunday in the summer
months. This sells tea and coffee, cakes, biscuits and ice creams etc. The profit
margin on the tea stall is normally 20% of selling price.
(3) All the club's transactions are in cash but if there are any surplus funds they are
banked in a local bank account. The balance on the bank account was
Rs.30,000 at 1 July 2015.
(4) The club has an annual subscription rate of Rs.20,000 per annum per person or
Rs.50,000 per annum for a family membership. Members are asked to pay their
subscription in the July at the beginning of the club's accounting year.
There are 10 family members of the club. Of these two paid their 2016
subscription in June 2015 and all the rest were received before 30 June 2016.
No individual members had paid their 2016 subscriptions in advance but at 30
June 2016 four members still owed their subscriptions. They had been contacted
and all four had promised to pay at the next evening social event. There are in
total 80 individual members.
(5) The club has the following other assets and liabilities:
30 June 30 June
2015 2016
Rs. (000) Rs. (000)
Sports equipment 2,560 Note 6
Inventory for the tea stall 120 60
Payables for the tea purchases 110 190
Prepayment of rent 40 50
(6) The sports equipment is all depreciated at 20% per annum on net book value on
the basis of the equipment held at 30 June each year.
(7) The old table tennis table was sold during the year for Rs.40,000. Its value as
recorded by the club at 30 June 2015 was Rs.30,000.
You are required to prepare an income and expenditure account for the year ended 30
June 2016 and a statement of financial position at that date.

Questions
6.3 GULSHAN CRICKET CLUB
The following balances have been obtained from the books of Gulshan Cricket Club:
June 30, 2014 June 30, 2015
Building 6,024,000 6,438,150
Furniture 3,012,000 2,710,800
Books 1,129,500 1,246,950
Sports equipment 1,807,200 1,595,200
Investments - 436,000
Advance subscription 86,000 92,000
Prepaid expenses 122,000 176,000
Expenses payable 186,900 207,600
Subscriptions receivable 326,000 357,000
Cash 1,204,800 1,586,500
The following information is also available in respect of the year ended June 30, 2015:
(i) Depreciation for the year has been credited directly to the asset accounts. The
rates of depreciation are as follows:
Building 5%
Furniture and books 10%
Sports equipment 20%
(ii) The club had 600 members on June 30, 2015. No fresh members were admitted
during the year but 10 members left the club on January 1, 2015. Subscription
per member is Rs. 500 per month.
Required:
(a) Summary of receipts and payments made during the year ended June 30, 2015.
(b) Income and Expenditure Account for the year ended June 30, 2015.

6.4 SEHAT CLUB
Following is the Receipts and Payments Account of Sehat Club for the year ended 30
June 2015:
Receipts and payments account for the year ended 30 June 2015
Receipts Rupees Payments Rupees
Opening balance 15,000 Salaries 63,500
Subscriptions 201,000 Rent 34,000
Entrance fees 63,000 Travelling expenses 1,500
Donations 38,000 Printing and stationery 1,000
Interest 16,000 General charges 2,500
Receipt on disposal of furniture 500 Periodicals 500
Investments 200,000
Closing balance 30,500
333,500 333,500
The club’s statement of financial position as on 30 June 2014 was as follows:

Statement of financial position as on 30 June 2014
Liabilities Rupees Assets Rupees
General Fund 172,500 Furniture – net 40,000
Liabilities: Rent 11,000 Sports equipment – net 20,000
Salaries 17,500 Investments 100,000
Subscription receivable 15,000
Interest receivables 11,000
Bank balance 15,000
201,000 201,000
Other details for the year ended 30 June 2015 are as follows:
(i) Furniture purchased on 1 July 2013 costing Rs. 4,000 was disposed off on 1
January 2015 at a scrap value of Rs. 500.
(ii) On 1 July 2014, furniture having written down value of Rs. 6,000 was traded-in
with new furniture having fair value of Rs. 6,700.
(iii) Depreciation is charged on diminishing balance basis at 20% on furniture and
15% on sports equipment.
(iv) Sports equipment worth Rs. 12,000 were received at year end as donation.
(v) Following amounts are receivable /outstanding as at 30 June 2015:
Rs.
Entrance fee receivable 3,000
Salaries outstanding 4,000
Rent outstanding 2,000
Required:
Prepare an income and expenditure account of Sehat Club for the year ended 30 June
2015 and its statements of financial position on that date.

Questions
6.5 AB SPORTS AND SOCIAL CLUB

You have agreed to take over the role of bookkeeper for the AB sports and social club.
The summarised statement of financial position on 31 December 2014 as prepared by
the previous bookkeeper contained the following items.
Assets Rs.
Heating oil for clubhouse 1,000
Shop and cafe inventories 7,000
New sportswear, for sale, at cost 3,000
Used sportswear, for hire, at valuation 750
Equipment for groundsman
Cost 5,000
Depreciation 3,500 1,500
Subscriptions due 200
Bank
Current account 1,000
Deposit account 10,000
Capital and liabilities
Accumulated fund 23,150
Payables
Sportswear 300
The bank account summary for the year to 31 December 2015 contained the following
items.
Receipts Rs.
Subscriptions 11,000
Bankings
Shop and cafe 20,000
Sale of sportswear 5,000
Hire of sportswear 3,000
Interest on deposit account 800
39,800
Payments Rs.
Rent and repairs of clubhouse 6,000
Heating oil 4,000
Sportswear 4,500
Grounds person 10,000
Shop and cafe purchases 9,000
Transfer to deposit account 6,000
39,500

You discover that the subscriptions due figure as at 31December 2014 was arrived at
as follows.
Subscriptions unpaid for 2013 10
Subscriptions paid for 2015 40
Corresponding figures at 31 December 2015 are:

Subscriptions paid for 2016 200
Subscriptions due for more than 12 months should be written off with effect from 1
January 2015.
Asset balances at 31 December 2015 include:

Heating oil for club house 700
New sportswear, for sale, at cost 4,000
Used sportswear, for hire, at valuation 1,000
Closing payables at 31 December 2015 are for:

shop and cafe inventories 800
sportswear 450
heating oil for clubhouse 200
Two thirds of the sportswear purchases made in 2015 had been added to inventory of
new sportswear in the figures given in the list of assets above, and one third had been
added directly to the inventory of used sportswear for hire.
Half of the resulting 'new sportswear for sale at cost' at 31 December 2015 is actually
over two years old. You decide, with effect from 31 December 2015, to transfer these
older items into the inventory of used sportswear, at a valuation of 25% of their original
cost.
No cash balances are held at 31 December 2014 or 31 December 2015. The
equipment for the grounds person is to be depreciated at 10% per annum, on cost.
Required:
Prepare the income and expenditure account and statement of financial position for the
AB sports club for 2015.

Questions
6.6 GD SPORTS CLUB

The GD Sports Club do not keep any accounting records other than notes concerning
the subscriptions of members and the amounts paid for expenses. During discussions
with the club committee you discover the following:
(1) The club does not have a bank account and conducts all its transactions in cash,
any surplus being paid into a building society account. The interest credited to
this account for the year to 31 March 2015
was Rs.350.
(2) A summary of the payments for the year is:
Rs.
Deposit to building society account 250
Purchase of dartboards 100
Heat/light 262
Repairs to snooker tables 176
Cafe payables 7,455
Rental of premises 1,000
Club match referees’ fees and expenses 675
Trophies, etc (treated as an expense) 424
Refreshments for visiting teams 235
(3) The club has 100 members who each pay Rs.5 per annum subscription.
However, on 31 March 2014 ten members had already paid their subscriptions for
2015.
On 31 March 2015 two members who had not been seen in the club since August
2014 had not paid their subscriptions for 2015 and it has been decided that the
amount due be written off and that their names be removed from the list of
members.
(4) The club has only two sources of income from club members – subscriptions and
cafe sales. A profit margin of 30% of selling price, is normally applied to
determine cafe selling prices but during the year Rs.397 of goods were sold at
cost.
(5) The club has the following other assets/liabilities:
1 April 2014 31 March 2015
Rs. Rs.
Equipment 4,000 ?
Building society account 4,600 5,200
Cafe inventories 840 920
Cafe payables 630 470
Cash in hand nil nil
Creditor for heat/light 34 41
(6) Equipment is depreciated at 10% of the value of equipment held on 31 March
each year.
Required:
(a) Prepare a cafe trading account for the year ended 31 March 2015;
(b) Prepare an income and expenditure account for the year ended 31 March 2015;
(c) Prepare a statement of financial position at 31 March 2015.

6.7 HB TENNIS CLUB

The HB Tennis Club was formed on 1 April 2015 and has the following receipts and
payments account for the six months ended 30 September 2015:
Receipts Rs. Payments Rs.
Subscriptions 12,600 Purchase of equipment 4,080
Tournament fees 465 Groundsman’s wages 4,520
Bank interest 43 Rent and business rates 636
Sale of club ties 373 Heating and lighting 674
Life membership fees 4,200 Postage and stationery 41
Court maintenance 1,000
Tournament prizes 132
Purchase of club ties 450
Balance c/d 6,148
17,681 17,681
Notes:
(1) The annual subscription fee is Rs.300. On 30 September there were five
members who had not paid their subscriptions, but this money was received on 4
October 2015.
(2) The equipment is expected to be used by the club for five years, after which time
it will need to be replaced. Its estimated scrap value at that time is Rs.50.
(3) During the six months, the club purchased 100 ties printed with its own design.
Forty of these ties remained unsold at 30 September 2015.
(4) The club has paid business rates in advance on 30 September 2015 of Rs.68.
(5) The club treasurer estimates that the following amounts should be accrued for
expenses:
Rs.
Groundsman’s wages 40
Postage and stationery 12
Heating and lighting 53
(6) The life membership fees received relate to payments made by four families. The
scheme allows families to pay Rs.1,050 which entitles them to membership for
life without further payment. It has been agreed that such receipts would be
credited to income and expenditure in equal instalments over 10 years.
Required:
(a) Prepare the club’s income and expenditure account for the six months ended 30
September 2015.
(b) Prepare the club’s statement of financial position at 30 September 2015.

Questions
6.8 MONARCH SPORTS CLUB

The Monarch Sports Club has the following summary of its cash book for the year
ended 30 June 2015:
Rs. Rs.
Opening bank balance 12,500
Receipts:
Subscriptions 18,000
Life membership fees 3,000
Competition receipts 7,500
Entrance fees 2,500
Equipment sold 1,000
______
32,000
44,500
Payments:
Transport to matches 3,700
Competition prizes 4,300
Coaching fees 2,100
Repairs to equipment 800
Purchase of new equipment 4,000
Purchase of sports pavilion 35,000
(49,900)
Closing balance (overdrawn) (5,400)
The following information is available regarding the position at the beginning and end of
the accounting year:
1 July 2014 30 June 2015
Rs. Rs.
Subscriptions in advance 1,100 900
Subscriptions in arrears 200 300
Coaching fees outstanding 150 450
Of the subscriptions outstanding at the beginning of the year, only half were eventually
received.
The equipment sold during the year had a net book value of Rs.1,200 at 1 July 2014.
Equipment is to be depreciated at 20% per annum straight line. Life membership fees
are taken to cover 10 years.
The treasurer insists that no depreciation needs to be charged on the sports pavilion,
as buildings do not decrease in value. He says that the last club of which he was
treasurer did charge depreciation on its buildings but that when the club came to
replace them, there was still insufficient money in the bank to pay for the new building.
Required:
Prepare an income and expenditure account for the Monarch Sports Club for the year
ended 30 June 2015.

6.9 LH SPORTS CLUB

The LH Sports Club opened on 1 May 2014 having purchased premises for Rs.80,000
and furniture for Rs.18,000, both financed by an interest-free loan from a member. The
club secretary has produced the following income and expenditure account for the year
to 30 April 2015.
Income Rs. Rs.
Joining fees (89 members u Rs.200 each) 17,800
Annual subscriptions 12,000
Cafe profits 8,450
Dinner Dance surplus 830
Equipment hire receipts 1,750
40,830
Expenditure
Premises costs 10,990
Equipment costs 5,590
Secretary’s expenses 470
Bank charges 125 (17,175)
Surplus for the year 23,655
The income and expenditure account has been prepared after taking into account the
following items at 30 April 2015:
cafe inventories Rs.1,400

payables for cafe supplies Rs.1,320
rates and insurances prepaid Rs.2,280
The following items have not been taken into account:
the equipment costs figure includes Rs.4,000 for the purchase of equipment
depreciation is to be provided as follows:
x at 2% on premises
x at 10% on furniture
x at 20% on equipment
joining fees are to be spread over a five-year period
the annual subscriptions figure includes Rs.960 paid in advance
subscriptions outstanding at the end of the year, and expected to be collected,
amount to Rs.300.
The bank balance at 30 April 2015 was Rs.21,295.
Required:
(a) Calculate the correct surplus for the year.
(b) Prepare the statement of financial position at 30 April 2015.

Questions
CHAPTER 7 – PREPARATION OF ACCOUNTS FROM INCOMPLETE

RECORDS
7.1 SHORT QUESTIONS

a) A business makes all of its sales at a mark-up of 25%. During the year sales
totalled Rs.98,000 and purchases were Rs.71,000. The inventory at the start of
the year was valued at Rs.10,200.
What was the value of the closing inventory at the end of the year?
b) A business has the following assets and liabilities at the start and end of March.
1 March 31 March
Rs. Rs.
The summarised bank statements for the year showed the following figures:
Bankings for the year were Rs.78,500
Payments to suppliers for the year were Rs.49,700
The owner banks her takings from the till each month but before doing so in
March she took Rs. 5,000 for her own use.
What are the sales for the year?

c) An accountant has prepared the following list of the assets and liabilities of a
business, but has forgotten to enter the cash balance.
Rs.
Trade payables 4,900
Inventory 9,300
Non-current assets 98,900
Capital 97,200
Bank loan 15,700
Receivables 16,800
Bank ?
What is the missing figure for 'Bank'?
7.2 IRUM
Irum is a sole trader. She does not keep a full set of accounting records but does keep
some records of transactions and documents. She has asked you to prepare her
accounts for the year ended 31 December 2015.
You have been given a list of the assets and liabilities of the business at the start and
end of the year.
Assets and liabilities
At 1 Jan 2015 At 31 Dec 2015
Rs.000 Rs.000
Inventory 10,400 ?
Irum has no idea what her inventory value was at 31 December as that she did not
count or value her inventory at the year end.

She has also been given you a summary of her bank statements for the year.
Summary of bank statements
Receipts Payments
Rs.000 Rs.000
1 Jan Balance b/d 1,620 To suppliers 42,800
Bankings 65,400 For expenses 9,300
Living expenses 10,400
31 Dec Balance c/d 4,520
You have also been able to gather the following information from Irum:
i) Irum banks her takings from the till each week but before doing so pays
Rs.50,000 to her employees and takes Rs.30,000 herself. The business operates
for 50 weeks each year.
ii) The till always has a cash float of Rs.100,000.
iii) The sales of the business are both cash and credit sales and are all made at a
mark-up of 40%.
Required:
(a) Calculate sales for the year.
(b) Calculate the value of the closing inventory at 31 December 2015.
7.3 COST STRUCTURES

(a) A greengrocer made sales during the month of Rs.49,200. Opening inventory
amounted to Rs.3,784 and month-end inventory was Rs.5,516. During the month
he purchased for cash goods which cost Rs.38,632.
Required:
Determine the gross profit and calculate the gross profit percentage as a
percentage of sales value.
(b) A rival has made sales of Rs.50,100 at a fixed mark-up of 25%. Closing inventory
was valued at Rs.5,438 and he purchased goods during the month amounting to
Rs.38,326.
Required:
Determine the value of the opening inventory.
(c) A local store makes sales at a fixed gross profit of 10% on sales value. Sales
during the month amounted to Rs.186,460; closing inventory was Rs.16,800 and
represents an increase of 25% over the value of the opening inventory.
Required:
Determine the cost of purchases during the month.

Questions
7.4 TAHIR
Tahir retired from his employment abroad and returned to this country, where he
purchased a small kiosk.
He took over the business on 1 July 2014, acquiring the existing inventory at a
valuation of Rs.1,142,000. The rest of the purchase price was apportioned as to
Rs.1,500,000 for fixtures and fittings and the balance for goodwill.
The following day he acquired a second-hand computer and accounts package at a
price of Rs.80,000. Unfortunately, Tahir made an error when printing his year-end
accounts causing him to lose all data except for printed a summary listing of payments
from the till.. Other than this, the only records available were his bank statements and
a number of vouchers. Surplus cash was banked during the year.
A summary of his bank account for the year ended 30 June 2015 shows the following.
Rs.000 Rs.000
Cash introduced 5,000 Purchase of business 3,192
Bankings from shop 16,427 Purchase of accounts 80
computer
Loan from mother (long-term) Rent (15 months to
(interest at 5% pa) 1,000 30 September 2015) 500
Rates (9 months to
31 March 2015) 84
Electricity 92
Purchases for resale 14,700
Private cheques 1,122
Balance 30 June 2015 2,657
22,427 22,427
The computer print-out was as follows.

Rs.000
Cash purchases for resale 1,606
Staff wages 742
Sundry shop expenses 156
Cash drawings 520
On 30 June 2015 inventory, measured at cost, amounted to Rs.1,542,000, amounts
due from customers Rs.74,000, and cash in hand amounted to Rs.54,000.
Depreciation is to be recognised on fixtures and fittings at a rate of 10%.
Accounts outstanding on 30 June 2015 were purchases of Rs.470,000 and rates of
Rs.120,000 for the year ended 31 March 2016.
Required:
Prepare Tahir’s statement of comprehensive income for the year ended 30 June 2015
and a statement of financial position at that date.

7.5 IJAZ
Ijaz is in business but does not keep proper books of account. In order to prepare his
income and expenditure account for the year ended 31 December 2015 you are given
the following information.
1 Jan 2015 31 Dec 2015
Rs.000 Rs.000
Inventory on hand 1,310 1,623
Receivables 268 412
Payables for goods 712 914
Payables for expenses 116 103
In addition you are able to prepare the following summary of his cash and bank
transactions for the year.
Cash account
Rs.000 Rs.000
Balance 1 January 62 Payments into bank 3,050
Shop takings 4,317 Purchases 316
Cheques cashed 200 Expenses 584
Drawings 600
Balance 31 December 29
4,579 4,579
Bank account
Rs.000 Rs.000
Balance 1 January 840 Cash withdrawn 200
Cheques from customers 1,416 Purchases 2,715
Cash paid in 3,050 Expenses 519
Drawings 400
Delivery van (purchased
1 September) 900
Balance 31 December 572
5,306 5,306
In addition Ijaz says that he had taken goods for personal consumption and estimates
that those goods cost Rs.100,000.
In considering accounts receivable Ijaz suggests that a provision is to be made of 5%
of amounts due after writing off a specific bad debt of Rs.30,000.
Depreciation on the delivery van is to be recognised at 20% per annum.
Required:
Prepare the statement of comprehensive income and a statement of financial position
at 31 December 2015.

Questions
7.6 RASHID
Rashid is coming to the end of his first year’s trading. He has not kept proper books
and records.
The following information relates to the year ended 30 September 2015.
(1) He set up in business when he won Rs. 200,000,000 on football pools. He
invested the money in the bank and set up in business as a retailer of clothing.
(2) He banks his takings periodically after payment of the following amounts.
Wages Rs.75,000 per week
Cleaning Rs.10,000 per week
Sundries Rs.15,000 per week
Personal expenses Rs.25,000 per week
Cash in hand at the end of the year was Rs.250,000.
(3) A summary of his bank statements reveals the following.
Rs.000 Rs.000
Capital introduced 200,000 Purchase of leasehold 150,000
premises
Bankings 125,750 Purchase of vans 6,000
Telephone 896
Rent and rates 1,682
Payments to suppliers 86,232
Wages 15,282
Repairs 3,637
Personal expenses 323
Balance c/d 61,698
325,750 325,750
An unpresented cheque of Rs.385,000 for repairs was still outstanding.

(4) Other assets and liabilities at 30 September 2015 were as follows.
Rs.000
Inventory 8,400
Trade receivables 10,350
Accrued expense – telephone 125
Prepaid expense– rent and rates 258
(5) Depreciation is to be recognised on the van at 25% of its cost. The lease on the
premises is for 50 years.
(6) Rashid estimates that his gross profit percentage is 25% on sale price, and also
informs you that he does not keep a record of the goods he took for his own use.
Required:
Prepare a statement of comprehensive income for the year ended 30 September 2015

7.7 MUDASSAR
Mudassar had retired from the army some years ago to run a grocery business in the
country. On 1 October 2015 his assistant failed to report for work and it was later
discovered that he had disappeared taking the contents of the cash till with him.
An analysis of Mudassar’s bank statements for the year ended 31 December 2015
revealed the following.
Rs.000 Rs.000
Balance b/f 280 Suppliers 13,600
Tax refund 1,000 Rent 800
Bankings 16,720 Rates 400
Insurance 200
Drawings 2,500
Bank charges 100
Balance c/f 400
18,000 18,000
A statement of affairs produced by Mudassar comprised the following.

31 December
2015 2014
Rs.000 Rs.000
Motor car (NBV) 3,200 3,600
Fixtures (NBV) 3,400 4,000
Inventory 1,200 900
Trade receivables 150 90
Rent prepaid 30 20
Cash Nil 380
Trade payable 120 110
A rough cash book kept by Mudassar showed the following.

Rs.000
Assistant’s wages 1,800
Sundry expenses 250
Cash purchases 300
Drawings 2,400
Cash received from customers 21,550
A footnote recorded that discounts received and discounts allowed were Rs.200,000
and Rs.300,000 respectively.
The insurance company agreed to admit the claim for loss of cash upon production of a
full set of accounts.
Required:
Prepare a statement of comprehensive income for the year ended 31 December 2015

Questions
7.8 ASLAM
Aslam, who has been in business as a contractor since 1 January 2015, received a
request from the tax authorities for his first year’s accounts.
He had not kept proper records of his business transactions, but was able to supply the
following information.
(1) All cheques received for work done had been paid into the bank, whilst cash
receipts had been used for paying cash expenses.
(2) From bundles of receipts and a wages notebook some of the cash expenses for
the year appeared to have been as follows.
Rs.000
Wages and Social Security 3,346
Materials 1,400
Electricity 56
General expenses 14
(3) Drawings were estimated at Rs.18,000 per week, out of which Aslam had paid
the rent of his builder’s yard of Rs.2,000 per week. His own Social Security
contributions had been included in Wages and Social Security and totalled
Rs.65,000 for the year.
(4) On 1 April he purchased a van for Rs.856,000. His mother lent him Rs.400,000
for the deposit, and the balance was payable by twelve monthly instalments of
Rs.38,000 each commencing on 1 June. The loan from his mother had not been
repaid at the end of the year.
(5) A summary of his bank account showed the following.
Rs.000 Rs.000
Balance 1 January 2015 150 Materials 4,790
Bankings 9,204 Van expenses 342
General expenses 110
Cheques drawn for cash 3,100
Cement mixer 200
Van instalments 266
Private cheques 342
Balance 31 December 2015 204
9,354 9,354
(6) On 31 December 2015 inventory (materials) amounted to Rs.560,000, cash in

hand Rs.10,000, trade receivables Rs.1,200,000, trade payables for materials
Rs.149,000, and outstanding van expenses Rs.36,000. There was no work in
progress on 31 December 2015.
(7) Depreciation of Rs.108,000 is to be recognised on the van and Rs.50,000 on the
cement mixer.
Required:
Prepare Aslam’s statement of comprehensive income for the year ended 31 December
2015 and a statement of financial position at that date.

7.9 UMAR
Umar is a grocer who had not kept a full set of books. The following was a summary of
his bank statements for the year ended 31 December 2015.
Rs.000 Rs.000
Amounts credited by bank 35,170 Balance 1 January 2015 892
Payments for trade payables 30,500
Rent and rates 475
Fixtures 100
Lighting and heating 210
Loan interest 120
Drawings 900
Customers’ cheques
dishonoured 180
Balance 31 December 2015 993
35,170 35,170
(1) Trading receipts consisted partly of cash and partly of cheques. During the year
Umar had paid out of his cash takings, wages amounting to Rs.2,950,000 and
sundry expenditure of Rs.140,000. He retained Rs.3,000 a week and maintained
a balance of Rs.20,000 in the till for change. The balance of his takings, together
with cheques amounting to Rs.250,000, which he had cashed out of his takings
for the convenience of certain friends, was paid into the bank.
(2) Cheques drawn payable to trade payables, but not presented at 1 January 2015,
amounted to Rs.280,000 and at 31 December 2015 to Rs.320,000.
(3) All dishonoured cheques were re-presented and honoured during the year.
(4) The loan interest was paid to Brough who had lent Umar Rs.4,000,000 some
years ago at a rate of interest of 3% per annum. The interest was duly paid half-
yearly on 31 March and 30 September, and the loan was still outstanding at the
end of the year.
(5) Discounts allowed by suppliers amounted to Rs.480,000 and those allowed to
customers were Rs.520,000.
(6)
1 Jan 2015 31 Dec 2015
Rs.000 Rs.000
(including a bad debt of Rs. 200,000 to be 2,800 3,200
written off)
Accrued general expenses 240 190
Rates paid in advance 40 50
Fixtures (including those purchased
during year) valued at 2,800 2,550
Amounts due for lighting and heating 80 70

Questions
Required:
Prepare
(a) a statement of Umar’s capital at 1 January 2015
(b) a statement of comprehensive income for the year ended 31 December 2015
(c) a statement of financial position at 31 December 2015.
7.10 YASIN
Yasin received a legacy of Rs. 20,000,000 on 1 January 2015 and on that date
purchased a small retail business. The completion statement from the solicitor
revealed the following.
Rs.000
Freehold shop property 10,000
Goodwill 2,000
Inventories 1,600
Shop fixtures 2,600
Rates in advance to 31 March 2015 100
16,700
The legacy was used to discharge the amount due on completion and the balance was
paid into a newly opened business bank account.
Yasin had not kept proper records of his business transactions but was able to supply
the following information.
(1) A summary of the cash till rolls showed his shop takings for the year to be
Rs.25,505,000; this includes all cash received from customers including those at
1 January 2015.
(2) The takings had been paid periodically into the bank after payment of the
following cash expenses.
Rs.000
Wrapping materials 525
Staff wages 3,423
Purchases for resale 165
Petrol and oil 236
(3) Personal cash drawings were estimated at Rs.20,000 per week and goods taken
for own use at Rs.2,000 per week.

(4) A summary of the bank statements showed the following.

Rs.000 Rs.000
Legacy – residual 3,300 Purchases for resale 14,863
b l
Sale of fixtures Motor expenses 728
purchased
at 1 January 2015 Delivery van (cost – 1 April 1,200
but not required (cost 2015)
Rs.200,000;
depreciation Nil) 130
Loan from Robin at 2,000 General expenses 625
10% pa
Cash banked 19,900 Loan interest
(six months to 30 September) 100
Private cheques 1,329
Electricity 228
Rates (year to 31 March 500
2016)
Balance per statement at
31 December 2015 5,757
25,330 25,330
A cheque drawn on 28 December 2015 of Rs.125,000 for goods purchased was

presented to the bank on 4 January 2016.
(5) During the year bad debts of Rs.223,000 arose and were irrecoverable. The
trade receivables at 31 December 2015 amounted to Rs.637,000, of which
Rs.100,000 is doubtful and for which an allowance should be recognised should
be made.
(6) At 31 December 2015 there were
Rs.000
Inventories 2,360
Store of wrapping materials 53
Trade payables – purchases 358
Electricity accrued 50
Accountancy fees accrued 100
Cash float in till 180
(7) The difference arising on the cash account was discussed with Yasin but
remained unexplained and was dealt with in an appropriate manner.
(8) Depreciation is to be recognised at the rate of 10% per annum on the fixtures and
at the rate of 20% on the van.
Required:
Prepare a statement of comprehensive income for the year ended 31 December 2015

Questions
7.11 MUNIRA
Munira is engaged in trading of garments. She has not maintained proper accounting
records. She suspects that some of her employees are involved in some sort of
misappropriation. The list of creditors, receivables and inventories prepared by her,
show the following balances:
Balances at December 31
2015 2014
Rs. 000 Rs. 000
Inventories at cost 8,500 12,500
The following transactions were recorded during the year ended December 31, 2015:
(Rs. 000s)
Sales to staff on cash basis 315
Discounts allowed on early payments 360
Collections banked 18,000
Paid to suppliers in cash 12,700
Trade discounts received 400
Bad debts written off 200
(i) Normal sales are made at cost plus 20% but sales to staff are made at cost plus
5%.
(ii) About 4% of the purchases during the year were defective and had to be sold at
30% below normal selling price.
(iii) The list of closing inventory at December 31, 2015 includes four items having a
total cost of Rs. 470,000. There was a casting error on the invoice raised by the
supplier and the total has been erroneously recorded as Rs. 740,000. The invoice
is still unpaid.
(iv) Collections made in the last week of December 2015 amounting to Rs. 860,000
were deposited in bank on January 2, 2016. Likewise, collections made in the last
week of December 2014 amounting to Rs. 500,000 were deposited in bank on
January 2, 2015.
Required:
You are required to calculate the loss incurred by Munira during the year 2015 on
account of misappropriations (if any).

7.12 ADNAN
Adnan runs a wholesale business. On December 31, 2015 he realised that his cash
and bank balances have reduced considerably. He has requested you to investigate
the situation and has provided you the following information:
(i) Balances
2015 2014
Rs. Rs.
Cash in hand 700 14,300
Cash at bank 103,400 349,100
Sundry receivables 80,900 48,700
Inventory 27,500 15,700
Sundry creditors 130,800 116,100
Rent payable (one month) 4,500 3,500
Electricity and telephone bills payable 8,800 -
(ii) 20% of the goods were sold on cash basis at a mark-up of 22% on cost. Credit
sales were made at a profit of 20% on sales. All collections from receivables were
made in cash.
(iii) Adnan paid wages, rent, electricity and telephone charges in cash out of sale
proceeds. The remaining amount of sale proceeds was deposited into bank.
(iv) The bank pass book reveals the following withdrawals:
Rupees
Creditors 1,423,800
Non-current assets (acquired on July 1, 2015) 75,000
Drawings 122,600
(v) All purchases were made on credit.
(vi) Wages amounted to Rs. 8,900 per month.
(vii) Payment on account of electricity and telephone charges amounted to Rs.
33,000.
(viii) Rent has been increased from October 2015.
(ix) The opening balance in the non-current assets account net of depreciation was
Rs. 285,000. Depreciation is recorded @ 10% p.a. on declining balance method
and is based on number of months for which the assets have been in use.
Required:
(a) Prepare Adnan’s profit and loss account for the year ended December 31, 2015
and his statements of financial position as on that date.
(b) Compute the amount of cash shortage, if any.

Questions
7.13 ASIF
Due to the death of his book-keeper, Asif failed to keep proper records for the year
ended June 30, 2015. He has forwarded to you the following statements:
Statement of financial position as at June 30, 2014

Rs. Rs.
Land and building at cost 130,000
Furniture: Cost 825,000
Depreciation (485,000) 340,000
Inventory 482,500
Trade receivables: 670,000
Less: Provision (27,000) 643,000
Prepayments 53,800
Cash in hand 10,000
1,659,300
Rs.
Asif-capital account 613,300
6% Loan 500,000
Trade creditors 500,100
Accrued expenses 21,700
Bank overdraft 24,200
1,659,300
Summary of the transactions in the bank book for the year ended June 30, 2015
Receipts Rs. Payments Rs.
Deposits against cash sales 624,750 Creditors 2,509,600
Receipts from receivables 3,071,000 Sundry expenses 212,500
Furniture sold on 1-Jul-12 Salaries 440,400

(purchased for Rs. 280,000
on 1-Jul-09) Furniture purchased on 01-
Jan-13
122,400 64,000
Interest on loan up to 31-Mar-

13 22,500
Total 3,818,150 Total 3,249,000
You have carried out the necessary scrutiny and ascertained the following:
(i) Asif sells the goods at a profit margin of one-third of their selling price i.e. at a
profit margin of 50% of cost of sales.
(ii) On June 30, 2015 trade receivables aggregated Rs. 600,500. These included Rs.
18,000 pertaining to goods which were sent on sale or return basis and were
unsold on June 30.

(iii) Closing inventory was valued at Rs. 580,000.

(iv) Receipts from receivables include an advance of Rs. 2,500 for goods delivered in
July 2015.
(v) Rs. 3,700 were recovered from a debtor which had been fully provided for on
June 30, 2014. A new customer who was introduced in 2015 and owed Rs. 4,200
was declared as bankrupt.
(vi) Sundry expenses payable on June 30, 2015 amounted to Rs. 19,000 (excluding
interest on loan) whereas prepayments amounted to Rs. 9,700.
(vii) Asif estimates that he withdrew Rs. 60,000 for his personal use and paid sundry
expenses aggregating Rs. 25,000 before depositing the proceeds from cash
sales.
(viii) Depreciation on furniture is provided at the rate of 10% per annum on cost.
(ix) Bonus is payable to the manager at 5% of the net profit after charging such
bonus.
(x) The following account balances were obtained from the memorandum records:
Rs.
Purchases 2,570,000
Discounts received 30,300
Sales returns 15,000
Required:
(a) A Profit & Loss account of Mr. Asif for the year ended June 30, 2015; and
(b) a statement of financial position as on June 30, 2015

Questions
7.14 MANSOOR
Mansoor deals in small electrical equipment and appliances. His Statements of
financial position for the year ended 30 June 2014 was as follows.
Assets Rupees
Fixtures 235,000
Inventories 552,000
Receivables 281,000
Property tax paid in advance 11,500
Cash in hand 35,000
Cash at bank 307,500
1,422,000
Capital and Liabilities Rupees

Capital 1,185,000
Liabilities:
Goods 220,000
Electricity charges 5,500
Accounting charges 11,500 237,000
1,422,000
On 30 June 2015, there was a fire in his shop which destroyed all his fixtures and
inventories. The following information has been gathered from the records available
with him.
(a) The insurance company agreed to pay Rs. 225,000 for fixtures and Rs. 630,000
for inventory without production of accounts; the inventory on hand was however
Rs. 670,000.
(b) The payments made during the year were as follows:
Rupees Rupees
Personal expenses 188,000 Property tax 32,000
Sundry expenses 15,000 Rent 240,500
Accounting charges 20,500 Purchase of goods 5,061,000
Electricity 50,500 Fixtures 45,000

(c) The following payments were made during the year, out of cash receipts:
(i) Assistant's salary Rs. 132,000.
(ii) Cash purchases averaging Rs. 24,000 per month.
(iii) Drawings which varied between Rs. 10,000 and Rs. 15,000 per month.
All other receipts were deposited into the bank. Total deposits amounted to Rs.
5,780,800 and included scrap sale of Rs. 35,000.

(d) The following balances as on 30 June 2015 were determined from the available
records:
Assets and Liabilities Rupees
Receivables 494,000
Creditors for goods 212,000
Creditors for electricity charges 1,900
Accounting charges payable 1,800
Rent outstanding 15,000
Cash in hand 40,500
(e) Included in the receivables is an amount of Rs. 14,000 which is considered
uncollectible.
(f) The rate of gross profit as a percentage of sale was 20%.
Required:
Prepare the statement of comprehensive income for the year ended 30 June 2015 and
a statement of financial position as on that date.
7.15 DANISH
Danish does not keep proper books of account due to his lack of knowledge of
double entry system of accounting. He has supplied you the following information
with respect to the year ended 31 December 2013 from the records kept in his diary:
(i) Transactions during the year:

Rupees
Cash received from customers 80,000
Discount allowed to customers 1,400
Bad debts written off 1,800
Cash paid to suppliers 63,000
Discount allowed by suppliers 1,000
Sales returns 3,000
Purchases returns 2,000
Expenses paid 6,000
Drawings 5,000
Rent paid 2,500
(ii) Opening balances as on 1 January 2013:
Assets and liabilities Rupees
Receivables 45,000
Payables 24,000
Cash 4,500
Furniture and fixtures 15,000
Inventory 25,000
Motor van 16,000

Questions
(iii) Receivables and payables as on 31 December 2013 amounted to Rs. 48,600

and Rs. 27,000 respectively.
(iv) Outstanding expenses as on 31 December 2013 amounted to Rs. 1,200.
(v) Depreciation is charged on furniture and fixtures at the rate of 10% and on
motor van at 20%.
(vi) Danish sells goods at cost plus 40% and follows a policy of maintaining a
allowance of 5% of the outstanding receivables.
Required:
(a) Statement of comprehensive income for the year ended 31 December 2013.
(b) Statement of financial position as at 31 December 2013.

CHAPTER 8 – PARTNERSHIP ACCOUNTING – RETIREMENT, DEATH,

DISSOLUTION, AMALGAMATION AND LIQUIDATION
8.1 A AND B
A and B are partners who share profits and losses in the ratio of 3:2. Their statement
of financial position as on June 30, 2013 is as follows:
Rupees
Assets
Non-current assets 2,625,000
Investments 437,500
Long term receivables 875,000
Current assets 1,750,000
5,687,500
Capital account:
A 1,050,000
B 700,000
Long term loans 1,750,000
Current liabilities 2,187,500
5,687,500
They agree to admit C as a new partner with effect from July 1, 2013 on the
following terms and conditions:
(i) The goodwill of the firm is to be valued at 2 years’ purchase of the average
profits of the firm for the last three years. (This means that the average annual
profit over the last three years is to be multiplied by 2).
The profits over the last three years are as follows:
Rupees
Year ended June 30, 2011 675,000
Year ended June 30, 2012 (700,000)
Year ended June 30, 2013 1,000,000
(ii) Goodwill will not appear in the books of the firm.
(iii) C will bring in cash amounting to Rs. 1,460,000 which includes his share of
goodwill in the firm.
(iv) Assets of the firm were agreed to be revalued as follows:
Rupees
Non-current assets (net of depreciation) 3,100,000
Current assets 1,575,000
Investments will be taken over equally by A and B at their fair market value of
Rs. 400,000.
(v) The new profit sharing ratio is to be 7: 5: 8.
Required:
(a) Prepare the following ledger accounts:
Revaluation Account
Partners’ Capital Accounts
(b) Prepare the opening statement of financial position of the new firm as on July
1, 2013.

Questions
8.2 P, Q AND R
P, Q and R are partners sharing profit in the ratio of their capitals. Their statement of
financial position at June 30, 2013 was as follows:
Rupees
Land and building 450,000
Motor cars 350,000
Equipment 95,000
Inventories 500,000
Receivables 400,000
Less: Allowance 60,000
340,000
Investments 300,000
Cash in hand 65,000
2,550,000
Capital:
P 640,000
Q 320,000
R 480,000
1,440,000
Payables and accrued expenses 485,000

Loan from Q 625,000
2,550,000
On July 1, 2013 R retired. His share of the net assets of the partnership was
ascertained after taking into account the following adjustments:
(i) The allowance against receivables was to be adjusted to 10% of the book
value of the receivables.
(ii) Inventories were to be written down by 5%.
(iii) The investments were revalued to their market value which was Rs. 435,000.
(iv) Investments with a market value of Rs. 160,000 were taken over by R.
(v) A motor car having a book value of Rs. 150,000 was taken over by R for Rs.
200,000.
(v) R’s share of goodwill was agreed at Rs. 216,000.
S was admitted as a partner on the same day that R retired and on the basis of the
adjusted statement of financial position.
He was given one-fourth share in the profits and he bought a proportionate share of
capital and goodwill by paying cash into the business. The basis of valuation of
goodwill for the purpose of admission of S as a partner was the same as at the time
of R’s retirement.
P and Q have decided that the cash paid in by S in respect of goodwill will be taken
out of the business by them in their profit sharing ratio.

Required:
Prepare capital accounts of the partners in columnar form and the statement of
financial position of the firm as at July 1, 2013 after the admission of S, assuming
that goodwill is not retained in the books of account.
8.3 X Y AND Z
A summarized statement of financial position of XYZ and Company as on January
31, 2013 is given below:
Debit Rupees Credit Rupees

Non-current assets 1,700,000 Current liabilities 1,900,000
Current assets 4,700,000 X, Capital 1,000,000
Y, Capital 1,500,000
Z, Capital 2,000,000
6,400,000 6,400,000
X, Y and Z share profits in the ratio of their capital in the partnership.

On January 31, 2013 X retired from the partnership. For the purposes of his
retirement, goodwill of the partnership was estimated at Rs. 1.89 million. It was
agreed that X would take cash from the business equal to the value of his closing
capital after the goodwill adjustment.
On February 1, 2013 A was admitted to the partnership. The new profit sharing ratio
was agreed at 3:4:2 for Y, Z and A respectively. A agreed to bring in cash equivalent
to his share of assets (excluding goodwill) in the new partnership plus an additional
amount of Rs. 0.5 million for goodwill.
Required:
Prepare journal entries to record the above transactions under each of the following
assumptions:
(a) Goodwill is not recorded in the books of account.
(b) Goodwill is recorded in the books of account.
8.4 AQUEEL AND BARKAT

Aqueel and Barkat were in partnership and shared profits and losses in the ratio of
3:2 respectively. The balances on the partners’ capital accounts at July 1, 2012
were: Aqueel Rs. 250,000, Barkat Rs. 400,000.
Due to expansion of business, Shahid was admitted as a partner on October 1, 2012
under the following arrangements:
(i) Assets were revalued upwards by Rs. 200,000 but the revaluation was not
recorded in the books.
(ii) Goodwill of the firm was assessed at Rs. 300,000 and was retained in the
books.

Questions
(iii) Shahid invested Rs. 500,000 as capital.

(iv) Shahid was allowed a monthly salary of Rs. 20,000 whereas Aqueel and
Barkat continued to receive salaries of Rs. 28,000 and Rs. 25,000 per month
respectively, as in the past.
(v) The balance profit was to be shared: Aqueel 35%; Barkat 35% and Shahid
30%.
(vi) Mr. Saleem was hired as manager from October 1, 2012 at a salary equal to
5% of the profit remaining after deducting such salary but before charging
partners’ salaries.
The profit for the year ended June 30, 2013 amounted to Rs. 486,000 after:
(i) Making allowance for a debt of Rs. 48,000 incurred prior to July 2012; and
(ii) providing for the partners’ salaries.
In addition to salaries, the partners withdrew the following amounts:
Aqueel Rs. 150,000; Barkat Rs. 120,000; and Shahid Rs. 90,000
Required:
Partners’ capital accounts for the year ended June 30, 2013.
8.5 ALPHA AND BETA
Alpha and Beta are partners in a firm sharing profits and losses in the ratio of 3:2.
The Statement of financial position of the firm as on 31 March 2013 was as under:
Assets Rupees
Furniture and fixture 600,000
Office equipment 300,000
Motor car 375,000
Inventory 250,000
Sundry receivables 190,000
1,833,000
Partners’ capital accounts
Alpha 1,042,200
Beta 494,800
1,537,000
Sundry payables 296,000
1,833,000
Due to expansion in the business, Gamma was admitted as a partner with effect
from 1 April 2013. Gamma brought furniture worth Rs. 120,000 and inventory
costing Rs. 80,000. He also contributed cash of Rs. 150,000 plus his proportionate
share of goodwill valued at two years’ purchase of the average profits of the last
three years.

Following adjustments were considered necessary, at the time of admission:

(i) On 1 April 2011, new furniture costing Rs. 8,000 was purchased but wrongly
debited to revenue account. The firm charges depreciation on furniture @ 10%
on straight line basis.
(ii) An invoice dated 1 October 2012 for purchase of goods amounting to Rs.
24,000 has not been recorded.
(iii) Value of the sundry receivables on 31 March 2013 is to be reduced by 6%.
The profits of the last three years, before the above adjustments were:
Rupees
2012 – 11 352,100
2011 – 10 232,000
2013 – 09 128,000
It was decided that the future profits of the firm would be shared among Alpha, Beta
and Gamma in the ratio of 5:3:2 respectively.
Required:
Prepare the capital accounts of the partners and the statement of financial position
of the firm on Gamma’s admission as a partner.
8.6 L&N
L & N carried on business in partnership sharing profits and losses in the ratio of 3:2.
They agreed to amalgamate on the 31st December 2013 with S & M who shared
profits and losses in the ratio of 2:1
Statement of financial positions of the firms as on 31 December 2013 were as
follows:
L&N S&M
Rs. Rs.
Non-current assets
Freehold premises 80,000
Plant, equipment and motor vehicles 34,000 26,000
Current assets
Inventory 140,000 92,000
Receivables 82,000 52,000
Bank 34,000 -
Current liabilities
Bank overdraft (40,000)
Trade payables (120,000) (50,000)
250,000 80,000
Capital accounts
L 150,000
N 100,000
S 60,000
M 20,000
250,000 80,000

Questions
The terms on which the business amalgamated were as follows:

1 M was to retire on 31 December 2013, any balances due to him being left on
loan with the new firm.
2 Profit was to be shared L one-half, N one-quarter and S one-quarter.
3 The values of goodwill were agreed at Rs.80,000 for L & N and Rs.60,000 for
S & M.
4 M was to take over a motor vehicle at a valuation of Rs.6,000. This was in the
old books at a NBV of Rs.3,600.
The new firm was to take over all the remaining assets and liabilities of the old firms.
For this purpose the assets were to be revalued as follows:
L&N S&M
Freehold premises 120,000 -

Plant, equipment and motor vehicles 28,000 29,990
Inventory 120,000 86,000
5 The capital of the new firm was to be contributed by the partners in their profit
sharing ratio, any surplus or deficiency being transferred to current accounts
6 No goodwill account was to be maintained in the new partnership.
Required
(a) Prepare in columnar form, the partners' capital accounts in the books of the
old and the new firms recording the above transactions
(b) Prepare the opening statement of financial position of the new firm.
8.7 W, Y AND A
W, Y and A are in partnership they share profits and losses 3:3:2. They agree to
dissolve their partnership on 31.12.2013 when their statement of financial position is
as follows:
Rs.
Non-current assets
Premises 520,000
Plant and machinery 80,000
Vehicles (3 cars) 60,000
660,000
Current assets
Inventory 90,000
Receivables 70,000
Cash 40,000
200,000
Current liabilities (20,000)
180,000
840,000

Capital accounts
W 300,000
Y 200,000
A 200,000
700,000
Current accounts
W 20,000
Y 12,000
A 8,000 40,000
740,000
Loan - Y 100,000
840,000
Various assets are sold for cash as follows:
Rs.
Premises 600,000
Inventory 7,500
The vehicles are taken over by the partners at the following agreed values:
Rs.
Car 1 - W 25,000
Car 2 - Y 30,000
Car 3 - A 15,000
The receivables pay Rs.67,000 in settlement.
The payables are paid Rs.18,000 in settlement.
Disolution expenses amount to Rs.20,000.
Required
Prepare the realisation account, cash account and capital accounts to close off the
partnership books.

Questions
CHAPTER 9 – FUNDAMENTALS OF COST ACCOUNTING

9.1 SIGMA LTD
The managing director of Sigma Ltd is concerned about the differences between the
reports produced and records maintained by you, as management accountant, and
by the company’s financial accountant.
Required:
Explain the differences between:
(i) the profit statements produced, and
(ii) the accounting records maintained by the two of you.
9.2 MANAGEMENT INFORMATION FUNCTIONS

Outline the three main functions of management for which information must be
provided.
9.3 JOHN PIRELLI

John Pirelli has been running a small printing business for the past six months; his
accounting records are limited to an analysed cash book, cheque book stubs and a
file of invoices. Both he and his accountant are happy with this for the preparation of
annual accounts for the Inland Revenue and the bank, but John Pirelli now wants
more information for controlling the business.
When talking to his accountant about setting up a suitable costing system, John
Pirelli was clear about the difference between management and financial accounts.
However, he became very confused over different categories of cost and has asked
you for some clarification.
Required:
Explain the distinction between:
(i) direct and indirect costs
(ii) fixed and variable costs
(iii) production and non-production costs
(iv) committed and discretionary costs.
9.4 CLASSIFICATION OF COSTS

(a) Explain the terms fixed, variable and semi-variable costs.
(b) Classify the following expenses under the headings in (a):
(i) Telephone charges (vii) Direct materials
(ii) Factory insurance (viii) Lift operator’s wages
(iii) Legal expenses (ix) Machine servicing and repairs
(iv) Social security (%) (x) Foreman’s salary
(v) Rent of premises (xi) Contract cleaning services
(vi) Light and heat (xii) Casual labour

9.5 REGRESSION 1
Total production costs each week in a production department have been measured
for the past five weeks, as follows.
Week Units produced Total cost
Rs.000
1 5 20
2 9 27
3 4 17
4 5 19
5 6 23
Required
(a) Use linear regression analysis to obtain an estimate of fixed costs per week
and the variable cost of production per unit.
(b) Use your results to estimate total costs in a week when 8 units are produced.
(c) Estimate a value for fixed costs and variable costs from the same data, using
the high/low analysis, and use the values that you obtain to estimate total
costs in a week when 8 units are produced.
9.6 REGRESSION 2
A company has achieved the following total sales in each year for the past five
years:
Year Total sales
Rs. million
20X4 = Year 1 12
20X5 = Year 2 15
20X6 = Year 3 15
20X7 = Year 4 18
20X8 = Year 5 19
Required
Use linear regression analysis to establish a formula for the trend line in sales, and
use this formula to estimate what total sales should be in Year 6 and Year 7.
To produce your answer, you can make use of the following calculations:
Year Total sales
x y xy x2 y2
1 12 12 1 144
2 15 30 4 225
3 15 45 9 225
4 18 72 16 324
5 19 95 25 361
15 79 254 55 1,279

Questions
9.7 COST ESTIMATION

The following recorded monthly costs of production will be used to estimate fixed
costs per month and the variable cost per unit:
Output Total cost
000 units Rs.000
17 63
15 61
12 52
22 74
18 68
Required
(a) Using the high low method, estimate the fixed costs per month and the
variable cost per unit. Use your estimate to budget the total costs in a month
when output is 25,000 units.
(b) Using linear regression analysis, estimate the fixed costs per month and the
variable cost per unit. Use your estimate to budget the total costs in a month
when output is 25,000 units.
9.8 IMI LIMITED

The records of direct labour hours and total factory overheads of IMI Limited over
first six months of its operations are given below:
Direct labour Total factory overheads
Hours in 000 Rs. In 000
September 2009 50 14,800
October 2009 80 17,000
November 2009 120 23,800
December 2009 40 11,900
January 2010 100 22,100
February 2010 60 16,150
The management is interested in distinguishing between the fixed and variable

portion of the overheads.
Required:
Using regression analysis, estimate the variable cost per direct labour hour and the
total fixed cost per month.

9.9 BULBUL LIMITED

Bulbul Limited (BL) produces a specialized product for industrial customers.
Following are the details of BL’s monthly production and associated cost for the past
six months:
Months Units Cost (Rs. ‘000)
March 75 900
April 60 700
May 65 850
June 80 950
July 105 1,200
August 95 1,040
Required:
Using regression analysis, calculate the estimated cost to produce 110 units.

Questions
CHAPTER 10 – INTERPRETATION OF FINANCIAL STATEMENTS
10.1 WASIM
Wasim is an importer and retailer of vegetable oils. Extracts from the financial
statements for this year and last are set out below.
Income statements for the years ended 30 September
Year 7 Year 6
Rs.000 Rs.000
Revenue 2,160 1,806
Cost of sales (1,755) (1,444)
–––––– ––––––
Gross profit 405 362
Distribution costs (130) (108)
Administrative expenses (260) (198)
–––––– ––––––
Profit before tax 15 56
Income tax expense (6) (3)
–––––– ––––––
Profit for the period 9 53
–––––– ––––––
Statements of financial position as of 30 September
Year 7 Year 6
Rs.‘000 Rs.‘000
Assets
Non-current assets
Property, plant and equipment 78 72
Current assets
Inventories 106 61
Trade receivables 316 198
Cash - 6
––––– –––––
422 265
––––– –––––
Total assets 500 337
––––– –––––
Equity and liabilities
Equity
Ordinaryshares 110 85
Preference shares 23 11
Share premium 15 -
Revaluation reserve 20 20
246 190
Current liabilities
Bank overdraft 49 -
Current tax payable 7 5
––––– –––––
254 147
––––– –––––
Total equity and liabilities 500 337
––––– –––––

Required
Define and calculate the following ratios:
a) Gross profit percentage.
b) Net profit percentage
c) Return on capital employed
d) Asset turnover
e) Current ratio
f) Quick ratio
g) Average receivables collection period
h) Average payables period
i) Inventory turnover
10.2 AMIR AND MO

The income statements and statements of financial position of two manufacturing
companies in the same sector are set out below.
Amir Mo
Rs. Rs.
Revenue 150,000 700,000
Cost of sales (60,000) (210,000)
–––––––– ––––––––
Gross profit 90,000 490,000
Interest payable (500) (12,000)
Distribution costs (13,000) (72,000)
Administrative expenses (15,000) (35,000)
–––––––– ––––––––
Profit before tax 61,500 371,000
Income tax expense (16,605) (100,170)
–––––––– ––––––––
Profit for the period 44,895 270,830
–––––––– ––––––––
Assets
Non-current assets
Property - 500,000
Plant and equipment 190,000 280,000
––––––– –––––––
190,000 780,000
Current assets
Cash at bank 500 22,000
––––––– –––––––
50,000 153,250
––––––– –––––––
Total assets 240,000 933,250
––––––– –––––––

Questions

Equity
Share capital 156,000 174,750
Retained earnings 51,395 390,830
––––––– –––––––
207,395 565,580
Long-term debt 10,000 250,000
Current liabilities
––––––– –––––––
––––––– –––––––
Required
Define and calculate the following ratios for each company:
a) Gross profit percentage.
b) Net profit percentage
c) Return on capital employed
d) Asset turnover
e) Current ratio
f) Quick ratio
g) Average receivables collection period
h) Average payables period
i) Inventory turnover
10.3 Alpha Limited and Omega Limited

Alpha Limited and Omega Limited are in the same trade, but operate in different
areas. Their accounts for the year ended 31 December, 2016 are as follows:
Profit and loss account Alpha Limited Omega Limited
Rs.’000 Rs.’000 Rs.’000 Rs.’000
Sales 1,440 1,720
Less: Cost of sales 1,120 1,342
──── ────
Less: Overheads 220 300
──── ────
Profit before tax 100 78
Taxation 40 30
Dividends 20 24
──── ────
60 54
──── ────
──── ────

Statement of financial position
Share capital of Rs. 1 each 600 200

Reserves 240 104
──── ────
840 304
8% Debentures - 120
840 424
──── ────
Represented by:
Non-current assets at cost 660 520
Less: Depreciation 200 160
──── ────
460 360
Current assets:
Inventory 280 172
Receivables 310 300
Cash 30 32
──── ────
620 504
──── ────
Taxation 40 30
Creditors 180 344
Bank overdraft - 42
Dividends 20 24
──── ────
240 440
──── ────
Net Current assets 380 64
──── ────
840 424
──── ────
Required
(a) Compute the following ratios for each of the companies:
(i) Current ratio
(ii) Acid test
(iii) Creditors ratio
(iv) Collection period or Receivables Ratio
(b) Carry out comparative analysis of the companies based on the computed
ratios in (a) above.

A
Answers
CHAPTER 1 – IAS 2: INVENTORIES

1.1 SHADUR RETAIL
(a) Reasons why NRV may be less than cost
Due to damage
Due to obsolescence (wholly or in part)
Due to declining selling prices
Due to increasing cost of completion/costs of making sale.
(b) (i) Cost on a FIFO basis

Date purchased Units Per unit Cost
Rs.000 Rs.000
30 December 70 506 35,420
16 December 60 503 30,180
2 December 20 500 10,000
150 75,600
(ii) NRV
NRV = selling price less selling and distribution costs = selling price u
95%
Date sold Units Per unit NRV
Rs.000 Rs.000
14 January 70 497.80 34,846
28 January 50 495.90 24,795
11 February 30 494.00 14,820
74,461
(iii) Amount to be included in financial statements

Lower of cost and net realisable value: Rs. 74,461,000

1.2 MEASUREMENT OF INVENTORIES

(a) IAS 2 requirements
Overheads
The Standard requires inventories to be measured at the lower of cost and net
realisable value. The term “cost” includes “cost of conversion” (where
appropriate). “Cost of conversion” includes “the systematic allocation of fixed
and variable production overheads”. Fixed production overheads are indirect
costs of production that remain relatively constant regardless of the volume of
production (e.g. depreciation and maintenance of factory buildings and
equipment, and the cost of factory management and administration). Fixed
production overhead per unit must be based on the normal level of activity.
Lower of cost and net realisable value (NRV)
Inventories are usually written down to NRV on an item by item basis. In
some circumstances it may be appropriate to group similar or related items.
Identification of costs
Specific identification of costs is inappropriate where there are large numbers
of items which are ordinarily interchangeable. The cost of such inventories
should be assigned by using the first-in, first-out (FIFO) or weighted average
cost formulas.
(b) Disclosure requirements of IAS 2
Accounting policies used in measuring inventories including the cost
formula used.
The total carrying amount and the carrying amount in appropriate
classifications.
The carrying amount of inventories carried at net realisable value.
The carrying amount of inventories pledged as security for liabilities.
1.3 KHEWRA MANUFACTURING

Rs.000
Raw materials (2,000 x 180,000 (W1)) 360,000
Finished goods (2,000 x 228,000 (being the lower of cost (W1) and
NRV (W2)) 456,000
816,000
Workings
1 Cost per unit
Rs.000
Raw materials 150,000
Import duties 10,000
Transport costs (to present location and condition) 20,000
Total raw materials cost 180,000
Variable costs 25,000
Fixed costs (Rs.30,000,000 ÷ 1,000) (based on normal level of
activity) 30,000
Total finished goods cost 235,000
2 Net realisable value of finished goods
Rs.000
Estimated selling price 240,000
Less: All costs necessary to make the sale (as above) (12,000)
228,000

Answers
1.4 SUPERIOR ENTERPRISES

Weighted average price method
Product A Product B Product C Product D Total
Units
Units
Units
Units
Units
Cost Cost Cost Cost Cost
Opening inventory 30 60,000 60 90,000 40 120,000 80 200,000 210 470,000
Purchases
Invoice value 360 810,000 780 1,560,000 560 1,820,000 600 1,650,000 5,840,000
Non-refundable duties 90,000 150,000 200,000 440,000
Transportation charges 36,000 78,000 56,000 60,000 230,000
936,000 1,788,000 2,076,000 1,710,000 6,510,000
Goods available for

sales 390 996,000 840 1,878,000 600 2,196,000 680 1,910,000 6,980,000
Sales 350 800 580 350
Closing inventory 40 102,154 40 89,429 20 73,200 330 926,912 1,191,695

Cost per unit 2,554 2,236 3,660 2,809
Realisable value less
transport cost 1,590 {(60x2900)-150} 3,350 (3500-150)
Write off of inventory per
unit 964 310
Write off of inventory -
total 10 9,640 6,200 15,840
Value of closing
inventory net of write off 1,175,855
Cost of sales 5,804,145
Notes:
(i) Inventories are valued at the lower of weighted average cost and net
realisable value.
(ii) An amount of Rs. 15,840 has been charged to cost of sales, being the cost of
inventories written down during the year.
(iii) Value of inventory at the end of the year and cost of sales during the year
amounted to Rs. 1,175,855 and Rs. 5,804,145 respectively.
(iv) Inventories valuing Rs. 561,800 (200 × 2,089) have been pledged with a
bank as security against a short term loan which is repayable on March 31,
2016.
1.5 INTERNATIONAL ACCOUNTING STANDARDS

(i) Inventories are assets:
(a) held for sale in the ordinary course of business;
(b) in the process of production for such sale; or
(c) in the form of materials or supplies to be consumed in the production
process or in the rendering of services.
(ii) Property, plant and equipment are tangible items that:

(a) are held for use in the production or supply of goods or services, for
rental to others, or for administrative purposes; and
(b) are expected to be used during more than one accounting period.

1.6 NKL ENTERPRISES

Cost of production
Rupees
Raw materials: Opening inventory 540,000
Purchases 845,000
Closing inventory (600,000)
Raw Materials consumed 785,000
Direct labour 735,000
Depreciation cost 80,000
Factory manager’s salary 47,600
Indirect labour 148,000
Indirect material consumed 45,000
Other production overheads 84,000
1,924,600
Less: work-in-progress – closing 250,000
Cost of 8,000 units of finished goods 1,674,600
produced
Finished goods Units Amount

(Rs.)
Opening inventory 4,000 880,000
Production 8,000 1,674,600
Total 12,000 2,554,600
Closing inventory 5,000 1,064,416
1.7 FASHION BLUE ENTERPRISES

(a) Fashion Blue Enterprises: Statement reconciling the inventory balance
Recorded Physical
Balance Count
Rs. 000 Rs. 000
Balance prior to adjustment 73,410 71,400
Add: Goods sold, but not dispatched by 31
December 2015 300
Less: Goods held on behalf of third parties (200)
Add: Unrecorded purchases 410
Add: Goods purchased, in transit at 30 December
2015 400
Add: Goods at Sialkot undercasted 90
Less: Unrecorded purchase return (2,500)
Add: Adjustment of sales to Saleem now recorded
at cost (780 u 30/130) 180
Less: Inventory shortfall / loss (balancing figure) (110)
(b) Value of inventory at 31 December 2015 71,690 71,690
No adjustment required for goods costing Rs.310,000 sold on credit to Skims
Industries Ltd.
The value of inventory that should be recorded in the Statements of financial
position is Rs. 71,690 thousand

Answers
(c) Adjustments in the books of Fashion blue enterprises

Debit Credit
Rs. 000 Rs. 000
(i) Inventory 300
Cost of goods sold 300
(iii) Inventory 410

Account payable – Mustafa & Co. 410
Being: Correction of unrecorded purchases
(iv) Account payable (Ali Garments) 2,500

Inventory 2,500
Being: Correction of unrecorded purchases
return
(viii) Inventory account 180

Cost of sales 180
Being: Sales to Saleem recorded at sale price
instead of cost now adjusted
Part (a) Inventory losses / write downs (P&L) 110

Inventory 110
Being: Unexplained difference / inventory theft /
inventory damage

1.8 KHAN LIMITED

Khan Limited: Inventory Reconciliation Statement
Rs. Rs.
Inventory as per physical inventory at July 14, 2015 185,000
(i) Less: Purchases for July 1 to 14, 2015 included in the
physical inventory:
Payment against purchases 48,000

Adjustments to the above
Last year purchases (5,000)
Purchased and not delivered yet (6,000)

Purchased and returned July 07 (2,000) (35,000)
(ii) Add: Sales for July 1 to 14, 2015 excluded from the
physical inventory:
Collection against sales 60,000

Adjustments to the above
Last year sales (1,500)
Sold and not delivered (2,800)
Sold and returned (760)
54,940
(v) Sales on account 10,000
64,940
(iii) Profit element (25% of 64,940) (16,235)
Cost of sales during 1-14 July 48,705
(iv) No adjustment is required for purchase of goods on
June 28 for Rs, 6,000, as already included in inventory
on 14 July, 2015
(vi) Error in carry forward of page total (1,000)
Error in casting 200
(vii) Goods held on consignment (2,200)
198,705

Answers
1.9 MUGHAL TRADING CORPORATION

(a) (i) FIFO
Cost of Closing
Cost of sales - issue sales inventory
Date Unit
Total
Units cost
Rupees
14-Jan 300 22 6,600
200 23 4,600 11,200
21-Jan 200 23 4,600
300 25 7,500 12,100
28-Jan 100 25 2,500 2,500
Closing
inventory 400 26 10,400 10,400
25,800 10,400
OR
Particulars Units Per unit cost Total
Opening inventory 300 22 6,600
Purchases 1,200 29,600
Closing inventory (Rate of last
purchases) 400 26 (10,400)
Cost of sales 1,100 25,800
(ii) Weighted average cost
Cost
Closing
of
inventory
Date Particulars Cost of sales - issue sales
Units Unit cost Total
Rupees
Opening
1-Jan inventory 300 22.000 6,600
10-Jan Purchases 400 23.000 9,200
700 22.571 15,800
14-Jan Sales 500 22.571 11,286 11,286
200 22.575 4,515
20-Jan Purchases 400 25.000 10,000
- 600 24.192 14,515
21-Jan Sales 500 24.192 12,096 12,096
100 24.190 2,419
25-Jan Purchases 400 26.000 10,400
500 25.638 12,819
28-Jan Sales 100 25.638 2,564 2,564
31-Jan 400 25.638 10,255 25,946 10,255

(b) Rupees
Inventory value on 17 January 2016 675,000
Less: Adjustment NRV (15,000 – 12,000) (3,000)
Add: Cost of sales (normal sales 250,000 × 80% ×
100/125) 160,000
Cost of sales {discounted sales 250,000 × 20% ×
100/(125×0.92)} 43,478
Purchases (155,710)
Purchase returns 1,990
Inventory value on 31 December 2015 721,758
Goods sold on 4 January 2016 and returned on 12 January 2016, no entry.

(c)
(i) Include
(ii) Include
(iii) Include
(iv) Do not include
(v) Include
(vi) Do not include
(vii) Do not include
(viii) Do not include
(d) (i) Cost of sales will be lower whereas profit and inventory will be higher.
(ii) Cost of sales will be higher by Rs. 65,000 whereas profit and inventory
will be lower by the same amount.

Answers
1.10 AFRIDI
Statement showing the amount of physical inventory as on March 31, 2015
Rupees
Inventory as on December 31, 2015 (W1) 140,025
Add: Purchases for the quarter (W2) 145,360
285,385
Less: Adjusted Cost of sales (W3) (100,345)
100
Less: goods given in charity ( /120 of Rs. 2,100) (1,750)
Physical inventory balance as on March 31, 2015 183,290
Working - 1
Inventory as on December 31, 2014
Inventory as valued previously 140,525
Add: Cost of 1,000 items recorded at Re. 0.50 per item instead of
Rs. 10 per item. 9,500
150,025
Less: error in carry forward of a page total (10,000)
Actual inventory as on December 31, 2014 140,025
Working - 2
Purchases for the quarter ended March 31, 2015
Total of invoices from Jan. 01 to Mar. 31, 2015 as per purchased day
book 138,560
Add: Goods purchased before march 31, 2015 but recorded in April
2015 37,000
Less : Invoices pertaining to Goods received before December 31,
2015 (28,000)
Less : Purchase of ceiling fan (2,200)
145,360
Working - 3
Cost of sales for the quarter
Total of sales invoices raised from January 01 to March 31, 2015 151,073
Add: Goods dispatched before March 31, 2015 but invoiced in April
2015 25,421
Less: Goods dispatched before December 31, 2014 but invoiced
during the quarter ended March 31, 2015 (38,240)
Less: sales return during the quarter (12,800)
Less: Sale invoice recorded twice (5,760)
Net sales 119,694
Add: Discount allowed (6,000 × 1.20 = 7,200 × 10%) 720
Sales before discount 120,414
Less: gross margin of 20% on cost (120,414*20/120) (20,069)
100,345

1.11 SUN SOYA OIL & COMPANY

Rs. 000 Rs. 000
Value of physical inventory as on 3 July 2015 24,000
Add: Cost of sales between 1st and 3rd July
(a) Sales during 1-2 July 2015 4,000
- Goods dispatched on 29 June 2015 but not invoiced (200)
- Goods dispatched after inventory-taking (400)
- Goods on sale or return basis (200)
3,200
(b) Returns inward/Sales returns (600)
2,600
Gross profit @ 25% of above (650) 1,950
Goods on sale or return basis (200 × 0.75) 150
(c) Purchase invoices received on 1 and 2 July (1,800)

- Goods received in June 2015 600
- Goods received on 7 July 300
(900)
(d) Purchase Returns 400 (500)
Inventory at Abbotabad 3,000

Overvaluation of inventory (450)
Value of inventory as on 30 June 2015 28,150

Answers
CHAPTER 2 – IAS 16: PROPERTY, PLANT AND EQUIPMENT
2.1 SUNDRY QUESTIONS
1 The cost of the machinery should include the delivery cost and also the cost of
preparation work or modification work carried out by the entity to enable the
machinery to be installed and become operational. = Rs.50.3 million (46 + 0.9
+ 3.4).
2
Rs.000
Cost 400,000
Adaptation 12,000
Legal fees 2,500
414,500
3
Depreciation charge Rs.
On asset disposed of in the year:
25%× Rs.80,000 × 9/12 15,000
On other assets held at the beginning of the year:
25%× (Rs.960,000 - Rs.80,000) 220,000
On assets purchased in the year:
25%× Rs.200,000 × 6/12 25,000
Total depreciation charge 260,000
4
Rs.000
Cost 7,800
Depreciation (7,800 u 20% u 3 years) (4,680)
Net book value 3,120
Trade in value (2,400)
Loss on disposal 720
5 Original depreciation = Rs.550 million /50 years = Rs.11 million

Revised depreciation = Rs.1,100 million /40 years = Rs.27 million
6
Rs.m Rs.m
Land (520 - 250) 270
Buildings – cost 400
depreciation (400/50 x 4 years) (32)
Net book value 368
Revaluation 750
Transfer to revaluation reserve 382
Total revalution surplus 652

2.2 LAHORE MOTORS LIMITED

Vehicle a/c
2012 Rs.000 2012 Rs.000

Cash 372,000 Balance c/d 372,000
———— ————
2013 2013
Balance b/d 372,000
Cash 108,600 Balance c/d 480,600
———— ————
480,600 480,600
———— ————
2014 2014
Balance b/d 480,600 Disposals 37,200
Disposals (allowance) 18,000
Cash (Eal fig) 21,600 Balance c/d 483,000
———— ————
520,200 520,200
———— ————
2015 2015
Balance b/d 483,000 Disposals 279,000
Disposals (allowance) 48,000
Cash (Eal fig) 267,000 Balance c/d 519,000
———— ————
798,000 798,000
———— ————
2010
Balance b/d 519,000
Accumulated depreciation a/c
2012 Rs.000 2012 Rs.000

Balance c/d 93,000 Depreciation a/c
(25% u Rs.372,000,000) 93,000
———— ————
2013 2013
Balance b/d 93,000
(25% u Rs. 480,600,000) 120,150
———— ————
213,150 213,150
———— ————
2014 2014
Disposals 18,600 Balance b/d 213,150
(25% u Rs.483,000,000) 120,750
———— ————
333,900 333,900
———— ————
2015 2015
Disposals 209,250 Balance b/d 315,300
(25% u Rs.519,000,000) 129,750
———— ————
445,050 445,050
———— ————
2010
Balance b/d 235,800

Answers
Depreciation a/c
2012 Rs.000 2012 Rs.000

Accumulated depreciation 93,000 P&L 93,000
——— ———
2013 2013
———— ————
2014 2014
———— ————
2015 2015
———— ————
Disposals a/c
2014 Rs.000 2014 Rs.000

Vehicle a/c 37,200 Accumulated depreciation (W1) 18,600
Vehicle a/c
(allowance against car) 18,000
Loss on disposal 600
——— ———
37,200 37,200
——— ———
2015 2015
Vehicle a/c 279,000 Accumulated depreciation (W2) 209,250
Vehicle a/c (allowance) 48,000
Loss on disposal 21,750
———— ————
279,000 279,000
———— ————
WORKINGS
(1) Depreciation on 2014 disposals

2 years @ 25% u Rs.37.2 million = Rs.18.6 million
(2) Depreciation on 2015 disposals

3 years @ 25% u Rs.279 million = Rs.209.25 million
Note: Detail of dates is not given so depreciation has been charged on year basis.

2.3 MB LIMITED
(a) Asset revaluation
Working: Annual depreciation = Rs.(180 million – 20 million)/10 years = Rs.16

million.
Accumulated depreciation to 31 December 2013 (= two years) = Rs.32 million.
Non-current asset
Rs. m Rs. m
Balance b/f 180 Revaluation account 180
Revaluation account 240 Balance c/f 240
420 420
Balance b’f 240
Accumulated depreciation
Rs. m Rs. m
Revaluation account 32 Balance b/f 32
Revaluation account
Rs. m Rs. m
Non-current asset a/c 180 Accumulated 32
depreciation
Revaluation reserve 92 Non-current asset a/c 240
272 272
Revaluation reserve
Rs. m Rs. m
Revaluation account 92
(b) Disposal calculation
Working: Annual depreciation in 2014 = (Rs.240 million - Rs.0)8 years = Rs.30
million.
Net book value at the date of disposal in 2015 = Rs.240 million - Rs.30 million
= Rs.210 million.
Rs. m
Disposal value 225
Net book value at the date of disposal 210
Gain on disposal 15
Rs. m
Gain on disposal (reported in statement of comprehensive income) 15
Transfer from revaluation reserve 92
Total increase in retained earnings reserve 107
Tutorial note
The transfer of the revaluation surplus from the revaluation reserve to retained
earnings is recorded in the main ledger by:
Debit: Revaluation reserve: Rs.92 million
Credit: Retained earnings reserve: Rs.92 million.

Answers
2.4 CHINIOT TRUCKING LIMITED

(a) Lorries account entries
Lorries account
Date Rs. 000 Date Rs.000
1.5.2014 Balance b/d 68,000 31.7.2014 Disposal a/c
(BOW1) 16,000
1.8.2014 Cash (FOW4) 35,000 15.12.2014 Disposal a/c
(FOW4) 35,000
1.1.2015 Cash (HOW5) 41,000 1.4.2015 Disposal a/c
(DOW3) 31,000
1.4.2015 Cash (JOW6) 6,000
1.4.2015 Disposal account 30.4.2015 Balance c/d 88,000
(part exchange) 20,000
170,000 170,000
1.5.2015 Balance b/d 88,000
Lorries disposal account

Date Rs. 000 Date Rs. 000
31.7.2014 Lorries a/c 31.7.2014 Allowance for
(BOW1) 16,000 depreciation
a/c (BOW 1) 9,250
15.12.2014 Lorries a/c 31.7.2014 Cash (BOW1) 3,000
(FOW4) 35,000
1.4.2015 Lorries a/c 1.12.2014 Allowance for
(DOW3) 31,000 depreciation
a/c (BOW 1) 2,267
31.12.2014 Cash (FOW4) 30,000
1.4.2015 Allowance for
depreciation
a/c (DOW 3) 6,000
1.4.2015 Lorries a/c –
part exchange
JOW 6 for
DOW 3 20,000
30.4.2015 P & L: loss on
disposal 11,483
82,000 82,000
Allowance for depreciation on lorries account

Date Rs. 000 Date Rs. 000
31.7.2014 Lorries disposal 1.5.2014 Balance b/d 14,000
a/c (BOW 1) (W) 9,250
1.12.2014 Lorries disposal
a/c (FOW 3) (W) 2,267
1.4.2015 Lorries disposal 30.4.2015 P & L: Charge
a/c (DOW 3) (W) 6,000 for the year
(W) 15,601
30.4.2015 Balance c/d 25,000
12,084 29,601
1.5.2015 Balance b/d 12,084

(b) Statement of financial position (extract) at 30 April 2015

Non-current assets Rs. 000
Lorries, at cost 88,000
Less: Accumulated depreciation (12,084)
75,916
(Note: The balance on the account at the end of the year represents the combined
cost of lorries COW2, HOW5 and JOW6 = Rs.21 million + Rs.41 million + Rs.26
million).
Workings: Depreciation
BOW 1 COW 2 DOW 3 FOW 4 HOW 4 JOW 4
Calculation Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000
Cost 16,000 21,000 31,000 35,000 41,000 26,000
Residual value (1,000) (1,000) (1,000) (1,000) (1,000) (1,000)
Depreciable amount 15,000 20,000 30,000 34,000 40,000 25,000
Annual charge 3,000 4,000 6,000 6,800 8,000 5,000
BOW 1 COW 2 DOW 3 FOW 4 HOW 4 JOW 4

Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000
2012 depreciation
3,000 u 10/12 2,500
2013 depreciation 3,000
4,000 u 3/12 1,000
2014 depreciation 3,000 4,000
6,000 u /121
500 Total
At 30 April 2014 8,500 5,000 500 14,000
2015 depreciation 4,000

3,000 u /123
750
6,000 u 11/12 5,500
6,800 u 4/12 2,267
8,000 u 4/12 2,667
5,000 u 1/12 417
Charge for the year 750 4,000 5,500 2,267 2,667 417 15,601
9,250 9,000 6,000 2,267 2,667 417
Disposal (9,250) (6,000) (2,267)
9,000 2,667 417 12,084

Answers
2.5 ASLAM, BASHIR & COMPANY

Dr. Cr.
Rs. Rs.
(i) Repairs and maintenance - building 50,000
Building account 50,000
(Fumigation cost previously capitalised now charged
to revenue)
Accumulated depreciation – building (5,000 + 2,500) 7,500
Depreciation – building 7,500
(Excess depreciation on Rs. 200,000 for six months
reversed: Rs. 5,000
Depreciation on Revenue item of Rs. 50,000 reversed;
50,000÷20: Rs. 2,500)
(ii) Plant and machinery account 90,000

Loss on disposal of old generator 510,000
Accumulated depreciation – plant and machinery 300,000
(To record disposal of old generator and the loss
incurred thereby)
Depreciation – plant and machinery 1,500

(Adjustment of Depreciation on new generator short
provided; Rs. 90,000 ÷ 15 ÷ 4)

Depreciation on old generator provided for the whole
year now adjusted for nine months; 900,000 ÷ 15 × 3 ÷
12

Depreciation on new generator provided for the whole
year now adjusted for three months – 1,910,000 ÷ 15
× 9 ÷ 12
(iii) Accumulated depreciation – furniture and fixtures 32,500

Depreciation – furniture and fixtures 32,500
(Depreciation excess provided now reversed: W1)
W1 Rs.
Cost of all furniture 3,075,000
Items fully depreciated 400,000
Depreciable assets 2,675,000
Depreciation on major repair (75,000/5) 15,000
Depreciation on remaining furniture and fixture (2,675,000 75,000/10) 260,000
275,000
Depreciation provided 307,500
Amount to be reversed 32,500

2.6 AZFAR AND COMPANY

Machinery Account
Rs. Rs.
01.07.2013 Balance b/d 1,055,222 01.01.2014 Depreciation on 27,094
disposal (W-1)
01.01.2014 Additions 600,000 01.01.2014 Disposal (W-1) 334,156
30.06.2014 Depreciation
(W-2) 104,096
30.06.2014 Depreciation on
additions (W-1) 45,000
30.06.2014 Balance c/d 1,144,876
1,655,222 1,655,222
01.07.2014 Balance b/d 1,144,876 30.06.2015 Depreciation

(W-2) 146,670
30.06.2015 Depreciation on
disposal (W-1) 25,062
30.06.2015 Disposal (W-1) 142,016
30.06.2015 Balance c/d 831,128
1,144,876 1,144,876
Machinery Disposal Account

Rs. Rs.
01.01.2014 Machinery 01.01.2014 Sales
account 334,156 proceeds 100,000
Profit and loss
A/c 234,156
334,156 334,156
30.06.2015 Machinery 30.06.2015 Sales

account 142,016 proceeds 192,016
30.06.2015 Profit and loss
account 50,000
192,016 192,016
Working – 1
Machine I Machine II
01.07.2011 Cost (300+200) 500,000
01.01.2012 Cost 250,000
30.06.2012 Dep. @ 15% (75,000) (18,750)
30.06.2012 W.D.V 425,000 231,250
30.06.2013 Dep. @ 15% (63,750) (34,688)
30.06.2013 W.D.V 361,250 196,562
01.01.2014 Dep. @ 15% (27,094)
01.01.2014 W.D.V 334,156
30.06.2014 Dep. @ 15% (29,484)
30.06.2014 W.D.V 167,078
30.06.2015 Dep. @ 15% (25,062)
30.06.2015 W.D.V 142,016

Answers
Working - 2
Working for depreciation expense and other adjustments:
2015 2014
Closing balance A 831,128 1,144,876
Additions during the year B 600,000
Disposed during the year (WDV) C (W1) 142,016 334,156
Depreciation
On additions during the year D = B × 15% ×1/2 45,000
On closing balance excluding
additions E =(A – B + D) × 15/85 146,670 104,096
On disposals during the year F (W1) 25,062 27,094
Opening balance (A – B +C + D + E + F) 1,144,876 1,055,221
Total depreciation 171,732 176,190
2.7 NAVEED ENTERPRISES

Vehicles at cost
01/07/11 Balance b/d 28/02/10 Vehicle
(W1) 6,800,000 disposal
account 1,420,000
01/11/12 Additions (W2) 1,680,000 30/06/11 Balance c/d 7,060,000
8,480,000 8,480,000
11/07/12 Balance b/d 7,060,000 30/04/12 Vehicle

disposal
account 1,200,000
01/09/12 Additions (W2) 2,820,000 30/06/12 Balance c/d 8,680,000
9,880,000 9,880,000
W-1: Vehicles opening balance
Vehicle balance on 01/07/2013 (1,360,000 × 100/20) 6,800,000
W-2 : Cost of addition of Vehicles 2014 2015

Depreciation for the year 1,236,267 1,424,240
On deletions (1,420,000×0.8×0.2×8/12 ) (151,467)
On deletions (1,200,000×0.8×0.8×0.2×10/12 ) (128,000)
On other b/f balances ((6,800,000-
1,420,000)×0.8×0.2) (860,800)
On other b/f balances ((6,800,000-1,420,000-
1,200,000)×0.8×0.8×0.2 ) (535,040)
On additions during 2013
((1,680,000-224,000) × 0.2) (291,200)
Balance being dep. on additions during the year 224,000 470,000
Cost of vehicle purchased on 1/11/2013

(224,000 × 12/8/0.2) 1,680,000
Cost of vehicle purchased on 1/9/2014
(470,000 × 12/10/0.2) 2,820,000

2.8 MJ ENTERPRISES
Non-current assets Account
Debit (Rs.) Credit (Rs.)
Balance b/d 100,000 Gain/Loss on asset disposal 5,000
W1
Gain/Loss on asset disposal 400 Gain/Loss on asset disposal 2,000
W2 800
Cash (New machine)
Inventory A/c (15,400/1.4) 11,000 Balance c/d 105,200
112,200 112,200
Accumulated Depreciation Account

Gain/Loss on asset disposal Balance b/d 33,000
(5,000 – 2,750) 2,250
Gain/Loss on asset disposal 900 Depreciation Expense W3 9,985
W2
Balance c/d 39,835
42,985 42,985
Gain/Loss on asset disposal

Non-current assets Account 400
W2
Accumulated Depreciation 2,250
Account
Accumulated Depreciation 900
Non-current assets Account Account 1,500
W1 5,000 Cash (Sale proceeds) 1,950
Non-current assets Account 2,000 P& L A/c – loss on disposal
7,000 7,000
W1:
The depreciation on asset up to June 30, 2015 is 45% i.e. 10% each year,
therefore its NBV represents 55% of cost. Hence cost of asset = 2,750 ÷0.55 =
Rs. 5,000
W2: Rupees
Cost of asset 2,000
Depreciation 2011 – 2014 – (40%) + six months of 2015 (900)
Written down value at the date of exchange 1,100
Cost of new machine less amount paid (1,200 – 800) 400
Loss on exchange/disposal of asset 700
W3: Depreciation for the year

Depreciation on asset held throughout the year
(100,000 – 5,000 – 2,000) *10% 9,300
6
Depreciation on asset sold (5,000 + 2,000) × 10% × /12 350
6
Depreciation on new asset obtained in exchange (1,200*10%* /12) 60
Depreciation on new asset (transferred from inventory)
(11,000*10%*3/12) 275
Total depreciation for the year 2015 9,985

Answers
2.9 ZIAKOT STEEL WORKS

Plant and Machinery A/c
Balance b/d 712,000 Repairs wrongly capitalised 25,000
Trade in value (2014) now 50,000 Machine traded-off 100,000
recorded
New machine purchased 60,000 Balance c/d 697,000
822,000 822,000
Accumulated Depreciation A/c

Repairs wrongly Balance b/d 240,000
8,000
capitalised
Machine traded-off 42,400 Depreciation for the year 97,480
Balance c/d 287,080
337,480 337,480
Workings: Rs.
1. . Repair wrongly capitalised on 01.10.2012 25,000
Less: Depreciation from 01.10.2012 to 30.06.2013 3,750
21,250
Less: Depreciation for 01.07.2013 to 30.06.2014 4,250
WDV on 01.07.2014 17,000
2. . Machine traded off in 2014

Cost of machine (01.01.2012) 100,000
Less: Depreciation for six months 01.01.2012 to 30.06.2013 10,000
90,000
Less: Depreciation 01.07.2012 to 30.06.2013 18,000
72,000
Less: Depreciation 01.07.2013 to 30.06.2014 14,400
57,600
Total depreciation provided up to 30.06.2014
(10,000 + 18,000 + 14,400) 42,400
3. . Calculation of depreciation for 2014-2015 WDV

Opening balance 472,000
Adjustment for prior year – repairs wrongly capitalised (17,000)
Disposal not recorded in 2014 (57,600)
Short capitalised as trade-in value netted off against cost 47,500
444,900
Depreciation on Rs. 50,000 for the period 01.04.2014 to
30.06.2014 2,500
Depreciation for full year on Rs.444,900 × 0.20 88,980
Depreciation on machine purchase during the year (60,000 ×
0.20 × 6/12) 6,000
97,480

CHAPTER 3: IFRS 15: REVENUE FROM CONTRACT WITH CUSTOMER
3.1 PARVEZ LIMTED

(1) Sale and repurchase agreement
The transaction is in the nature of sale and repurchase agreement therefore
the economic phenomenon of the transaction is that of a loan for which the
goods have been given as security. Therefore no contract of sale of goods or
services is identified.
The difference between the sale price of Rs.18m and the repurchase price of
Rs.19m represents the interest on the loan for a period of four months.
To account for the transaction in accordance with its substance:
The goods should remain in inventories of PL at the lower of cost and
net realisable value.
No sale should be recorded.
The amount once received from the bank should be treated as a current
loan liability of Rs.18m.
Interest should be charged applying implicit rate to profit or loss for each
reporting period.
(2) Consignment inventories
There is a contract for sale of cars between Parvez Limited (PL) and dealer
containing confirmation of respective right and obligation, payment term,
commercial substance and probability of collection of price.
There is only one performance obligation, namely, the transfer of cars to the
dealer.
As per contract, the transaction price would be list price on the date of sale to
third parties during the six month period. Thereafter, though not specifically
mentioned, after the lapse of fifteen days the list price applicable on sixteenth
day would be the transaction price of the unsold cars not returned.
Since there is only one performance obligation, the question of allocation of
transaction price does not arise till the time of sale to third parties.
PL will recognize revenue upon satisfaction of performance obligation.
Performance obligation would be satisfied once the dealer has sold any cars
to third parties during the six month period. Thereafter, if the dealer does not
return the unsold cars within fifteen days, the performance obligation would be
considered as satisfied on sixteenth day.
On 31 March 2017 the vehicles should remain in inventories in PL books of
accounts.

Answers
3.2 SACHAL LIMITED

General considerations for revenue recognition
International Financial Reporting Standard (IFRS 15) provides that the revenue is
recognized:
(a) when the performance obligation is satisfied by the entity by transferring a
promised good or service (ie an asset) to the customer; and
(b) the asset is transferred when the customer obtains the control of that asset.
Based on this principle, the following is the considerations to be taken into account
in determining accounting for revenue:
(a) Restaurant management software
There exists a contract for sale of Restaurant management software between SL
and customers containing confirmation of respective obligation and right,
payment term, commercial substance and price is collected in advance.
There are two performance obligations, namely:
x Explicit: delivery of software and
x Implicit: six month on-site support
As per contract, the transaction price is Rs.1.5 million for both performance
obligations.
Based on stand-alone selling price approach, software will be priced as Rs.1.35
million and six month on-site support services will be priced as Rs.0.15 million.
PL will recognize revenue from sale of software upon delivery if SL can
objectively conclude that the software meets the requirements of the customer.
The term of full payment of transaction price in advance is a reasonable evidence
of clarity of specification between SL and customer. The agreed thirty days trial
time will be considered as a formality of the contract.
PL will recognize revenue from on-site support services over six months period
on straight-line basis.
(b) Maintenance support for the standard software package
Such service is provided under a written contract that contains confirmation of
respective obligation and right, payment term, commercial substance. SL will
assess the collectability of the price if not received in advance.
The performance obligation is to provide maintenance and support services.
The price of the service is Rs.0.3 million for one year term.
Since there is only one performance obligation, the question of allocation of
transaction price does not arise.
PL will recognize revenue over one year period on straight-line basis, as in this
case input method is appropriate. The pattern of resources consumed by SL is
evenly spread over the period of contract.
(c) Customized software
Such service is provided under a written contract that contains confirmation of
respective obligation and right, payment term, commercial substance. SL will
assess the collectability of the price.

The performance obligations are:

x Designing and development of customized software, and
x Maintenance and support services of the said software
The total price of the software and maintenance service will be determined on the
basis of terms of contract.
The price will be allocated between the two performance obligations. Price of
maintenance services for the first year is included in the total contract price. The
allocated price of the first year would be 10% of the contract price, which is the
stand-alone price of the said services for the second year. For second year it
would be 10% of the contract price and for next three years the maintenance and
support services will be priced at 5% of the contract price. The price of design
and development will be 90% of the contract price.
Satisfaction of performance obligation:
Revenue from design and development - PL will recognize revenue from design
and development over time, because the software at every stage is expected to
be customer- specific and would have no alternative use for SL. The monthly
payment based on the basis of charged hours confirms that SL would have an
enforceable right to receive payment if the contract is terminated before
completion.
Revenue from Maintenance and support services - PL will recognize revenue
over five years period on straight-line basis, as in this case, input method is
appropriate. The pattern of resources consumed by SL is evenly spread over the
period of contract.

Answers
CHAPTER 4 – PREPARATION OF FINANCIAL STATEMENTS
4.1 SAGODHA SPICES LIMITED
Statement of comprehensive income for the year ended 31 March 2015

Rs.000
Revenue 1,950
Cost of sales (140 + 960 – 150) (950)
———
Gross profit 1,000
Other operating income 75
Distribution costs (420)
Administrative expenses (210 + 16) (226)
———
———
Profit for the year 400
———
Statement of financial position at 31 March 2015
Rs.000 Rs.000
ASSETS
Non-current assets
Property, plant and equipment (750 220) 530
Investments 560
———
1,090
Current assets
Inventories 150
—— 620
———
Total assets 1,710
———

Share capital 600
Accumulated profits (240 – 120 + 400) 520
———
1,120
Retirement benefit obligations (180 + 16) 196
Current liabilities
Trade and other payables 260
Operating overdraft 80
Income tax payable (29 + 25) 54
—— 394
———
Total equity and liabilities 1,710
———

4.2 KASUR CHEMICALS LIMITED
Statement of financial position as at 31 December 2015

Rs.000 Rs.000
Non-current assets
Plant and equipment (126 – 50 – 32) 44
Goodwill 90
——
134
Current assets
Inventories (goods for resale) 100
Cash 60
—— 490
——
624
——
Share capital 300
Share premium 20
Revaluation reserve 20
Accumulated profits (40 +134) 174
—— 514
Current liabilities
Trade payables 60
Income tax 50
—— 110
——
624
——
Rs.000
Revenue (1,000 – 28) 972
Cost of sales (W) 474
——
Gross profit 498
Other operating income 16
Distribution costs (W) (230)
Administrative expenses (W) (100)
——
——
Profit for the period 134
——

Answers
Workings
Cost of Distribution Administrative
sales costs expenses
Rs.000 Rs.000 Rs.000
Opening inventory 60
Purchases 540
Purchases returns (26)
Carriage outwards 28
Warehouse wages 80
Salespersons’ salaries 60
Administrative wages 40
Delivery vehicle hire 20
Distribution expenses 10
Closing inventory (100)
Depreciation 32
474 230 100
4.3 OKARA HAIR PRODUCTS LIMITED

Okara Hair Products Limited - Statement of comprehensive income for the
year ended 30 June 2015
Rs.000
Revenue (2,282 – 66) 2,216
Cost of sales (W) 1,260
Gross profit 956
Other income 20
Distribution costs (W) (255)
Administrative expenses (W) (489)
232
Finance costs (interest cost) (70)
Tax (54 – 8) (46)

Workings
Cost of Distribution Administrative
Rs.000 Rs.000 Rs.000
Purchases 1,055
Purchase returns (25)
1,046
Wages and salaries (0:70:30) 112 48
Office expenses 236
Depreciation:
Plant and machinery 84
Delivery vans 48
Office furniture 17
Selling expenses 95
Rent of plant and machinery 21
Factory expenses 109
Legal expenses 25
1,260 255 489

Answers
4.4 THATTA TOURS LIMITED

Thatta Tours Limited: Statement of financial position as at 31 December 2015
Non-current assets Rs.000 Rs.000
Land and buildings (W1) 1,550
Plant and machinery (W1) 85
Property, plant and equipment 1,635
Intangible assets 30
Investments 45
1,710
Current assets:
Inventory 55
Cash 23
94
Total assets 1,804

Share capital and reserves
Share capital 980
Retained earnings (W5) 314
Total equity 1,294
10% loan notes repayable 2020 300
Current liabilities
Trade payables 100
Taxation payable (25 + 70) 95
Accrued loan note interest 15
210
Thatta Tours Limited: Statement of comprehensive income for the year ended 31
December 2015
Rs.000
Revenue 920
Cost of sales (W2) (385)
Gross profit 535
Other income 20
555
Distribution costs (W2) (115)
Administrative expenses (W2) (120)
Operating profit 320
Profit on disposal of factory 60
Interest costs (W3) (30)
Income tax expense (W4) (70)

Workings
(W1) Non-current assets

Land and Plant and
buildings machinery
Rs.000 Rs.000
Cost: 4,200 200
Accumulated depreciation:
At 1 January 2015 2,600 75
Charge for the year
(5% u (4,200 3,200)) 50
(20% u 200) 40
At 31 December 2015 (2,650) (115)
Carrying amount 1,550 85
(W2) Cost analysis
Cost of Distribution Admin
Rs.000 Rs.000 Rs.000
Purchases 405
General administration 46
Administration salaries 24
General distribution 25
Distribution salaries 10
Directors’ remuneration 15 20
Depreciation of buildings:
Distribution (70% of 50 W1) 35
Administrative expenses (30%of 50 W1) 15
Depreciation of plant and machinery:
Distribution (75% of 40 W1) 30
Administrative expenses (25%of 40 W1) 10
Bad debts 5
385 115 120
(W3) Interest charge
Rs.000
Loan notes interest paid 15
Accrued interest (balance) 15
Charge for the year (10% x 300) 30
(W4) Taxation charge
Rs.000
Over-provision in the previous year (25)
Tax on current year profits 95
Charge for the year 70

Answers
(W5) Retained earnings

Rs.000
Accumulated profits at beginning of the year 64
Dividends paid (30)
At end of year
314
4.5 BSZ LIMITED

BSZ Limited
2015
Rs. m
ASSETS
Non-current assets
Property, plant and equipment
Land and buildings (W2) 492.5
Furniture and fixtures (W2) 16.9
Machines (W2) 40.0
Computer equipment (W2) 7.0
556.4
Long term advances (W5) 4.0
560.4
Current assets
Inventories 90.0
Accounts receivable (W4) 57.0
Other receivables (W5) 45.0
Cash at bank 29.0
221.0
781.4
2015
Rs. m
Share capital and reserves
Share capital 400.0
Accumulated profits (W6) 48.4
448.4
Revaluation surplus 120.0
568.4
Current liabilities
Short term loan 114.0
Accounts payable and other payables (75 + 7) 82.0
Taxation 17.0
213.0
781.4

Workings
(W1) Depreciation
2015
Rs. m
Land and buildings
Cost per trial balance 405.0
Less: Non-depreciable assets
Freehold land (255.0)
Capital work in progress (not yet ready for intended use) (20.0)
130.0
Depreciation (5%) 6.5
Furniture
Of which:
Held for the whole year (10% u 19) (1.9)
Bought 1 April (10% u 8 u 3/12) (0.2)
Machines
Of which:
Held for the whole year (10% u 70) (7.0)
Sold 28 February (10% u 15 u 8/12) (1.0)
Computer equipment
Cost per the trial balance 10.0
Accumulated depreciation as of July 1, 2014 2.0
Depreciation for the year 1.0
Accumulated depreciation as of June 30, 2015 3.0
Carrying value as at June 30, 2015 7.0
(W2) Property, plant and equipment

1.1 Operating assets
Freehold Furniture
land and and
Cost/revalued amount buildings fixtures Machines
Rs. m Rs. m Rs. m
Cost per trial balance 405.0 27.0 85.0
Revaluation 120.0 - -
Disposal - - (15.0)
Adjusted balances 525.0 27.0 70.0
As of July 1 2014 (per trial balance) 26.0 8.0 27.0
For the year (W1) 6.5 2.1 8.0
Disposals - - (5.0)
As at June 30 2015 (32.5) (10.1) 30.0
Carrying amount 492.5 16.9 40.0

Answers
(W3) Profit on disposal

Rs. m
Proceeds 13.0
Cost 15.0
Accumulated depreciation (5.0)
Carrying amount (10.0)
Profit on disposal 3.0
(W4) Accounts receivable

Rs. m
Balance per trial balance 60.0
Less: Provision for bad debts (see below) 3.0
57.0
Provision for bad debts
Balance as at July 1, 2014 1.0
Provision made during the year (bal. figure) 2.0
Balance as at June 30, 2015 (Rs. 60 million x 5%) 3.0
(W5) Other receivables (advances, deposits, prepayments etc.)

Rs. m
Advances to suppliers 16.0
Less amount classified as non-current (4.0)
12.0
Advances to staff 6.0
Short term deposits 11.0
Prepayments 16.0
45.0
(W6) Accumulated profits
Rs. m
Per the trial balance 65.0
Less: depreciation (6.5 + 2.1 + 8.0 + 1.0 (W1)) (17.6)
Profit on disposal (W3) 3.0
Increase in provision for bad debts(W4) (2.0)
48.4

4.6 YASIR INDUSTRIES LIMITED

Yasir Industries Limited: Statement of Financial Position as of June 30, 2015
2015
Assets Rs. m
Non-current assets
Property, plant and equipment (W2) 351.00
Intangible assets (20 – 12) 8.00
359.00
Current assets
Inventories (W6) 64.50
Trade receivables (W5) 39.00
103.50
462.50
Equity and Liabilities
Equity
Share capital 120.00
Retained earnings (W4) 97.65
217.65
Redeemable preference shares 40.00
Debentures 80.00
120.00
Current liabilities
Trade payables 30.40
Accrued expenses (W3) 22.20
Taxation 16.50
Bank overdraft 13.25
82.35
Total Equity and Liabilities 462.50
Yasir Industries Limited

Statement of Comprehensive Income for the year ended June 30, 2015
2015
Rs. m
Sales revenue (W5) 451.40
Cost of sales (W7) (250.72)
Gross profit 200.68
Distribution costs (W8) (20.05)
Administrative expenses (W8) (40.38)
Financial charges (W9) (6.30)
133.95
Loss due to fraud (30.00)
Profit before tax 103.95
Income tax expense (16.50)
Profit for the year 87.45
Other comprehensive income
Total comprehensive income for the year 129.95

Answers
Workings
(W1) Leasehold property
Annual depreciation before the revaluation (230 ÷ 40 years) = Rs. 5.75 million per
annum.
Depreciation this year has been charged incorrectly on cost (whereas it should
have been on the revalued amount).
This year’s charge must be added back
Dr Cr
Accumulated depreciation 5.75
Cost of sales (50%) 2.88
Administrative expenses (30%) 1.72
Distribution costs (20%) 1.15
Rs. m
Carrying amount at the 30 June (as per trial balance)(230.00 – 40.25) 189.75
Add back depreciation incorrectly charged (see above) 5.75
Carrying amount of property at the start of the year 195.5
Revaluation surplus Rs. m

Revalued amount of leasehold property 238.00
Less: WDV of leasehold property at revaluation 195.50
Revaluation Surplus 42.50
Depreciation of revalued property

Number of years depreciation by the year end: (40.25 ÷ 5.75) = 7 years.
Therefore, remaining useful life as at the year-end = 33 years
Revaluation was at the start of the year
Remaining useful life at the start of the year = 34 years
Rs. m
Depreciation charge based on the revalued amount (238/34 years) 7.0
Dr Cr
Cost of sales (50%) 3.5
Administrative expenses (30%) 2.1
Distribution costs (20%) 1.4
Accumulated depreciation 7.00
(W2) Property, plant and equipment

Rs. m
Leasehold property (Rs. 238m – 7) 231
Machines (Rs. 168.6 – Rs. 48.6m) 120
351
(W3) Accrued Expenses

Rs. m
As per trial balance 16.20
Accrued interest on loan (Rs. 120m × 10% × 6/12) 6.00
22.20

(W4) Retained earnings

Rs m
Balance as per trial balance 10.20
Profit for the year 87.45
97.65
(W5) Sales and receivables
Sales. Rec.
Rs. m Rs. m
Given in the trial balance 478.40 66.00
Deduct revenue incorrectly recognised (sale or return) (27.00) (27.00)
Cost of sales 451.40 39.00
(W6) Closing inventory
Sales.
Rs. m
Given in the question 42.00
Add back inventory held by customer on sale or return (100/120 u 27) 22.50
Cost of sales 64.50
(W7) Cost of sales
Rs. m
Opening inventory as of July 1, 2014 38.90
Purchases 175.70
Direct labour 61.00
Manufacturing overheads excluding incremental depreciation 39.00
Less: Closing inventory (64.50)
Deduct depreciation incorrectly charged on cost (2.88)
Add depreciation charged on revalued amount 3.50
Cost of sales 250.10
(W8) Administrative expenses and distribution costs
Admin. DIst/
Rs. m Rs. m
Given in the trial balance 40.00 19.80
Deduct depreciation incorrectly charged on cost (1.72) (1.15)
Add depreciation charged on revalued amount 2.10 1.40
Cost of sales 40.38 20.05
(W9) Financial charges
Rs m
Balance as per trial balance 0.30
Accrued interest on loan (Rs. 120m × 10% × 6/12) 6.00
6.30

Answers
CHAPTER 5 – IAS 7: STATEMENT OF CASH FLOWS
5.1 TRANGO LIMITED

Statement of cash flows: direct method Rs.
Cash flows from operating activities
Cash receipts from customers (W1) 889,000
Cash payments to suppliers (W4) (314,900)
Cash payments to employees (W2) (265,400)
Cash paid for other operating expenses (W4) (147,000)
Cash generated from operations 161,700
Taxation paid (W5) (42,000)
Interest charges paid (W5) (25,200)
Net cash flow from operating activities 94,500
Statement of cash flows format: indirect method Rs.

Adjustments for:
Depreciation and amortisation charges 46,000
Loss on disposal of non-current asset 9,000
Interest charges in the statement of comprehensive
income 24,000
181,000
Increase in receivables (173,000 – 157,000) (16,000)
Decrease in inventories (42,000 – 38,000) 4,000
Decrease in trade payables
(43,600 + 4,000) – (35,700 + 4,600) (7,300)
Taxation paid (W5) (42,000)
Interest charges paid(W5) (25,200)
Net cash flow from operating activities 94,500
Workings:
W1: Cash from sales Rs.
Trade receivables at 1 January 2015 157,000
Sales in the year 905,000
1,062,000
Trade receivables at 31 December 2015 (173,000)
Cash from sales during the year 889,000

W2: Cash paid for wages and salaries Rs.

Accrued wages and salaries at 1 January 2015 4,000
Wages and salaries expenses in the year 266,000
270,000
Accrued wages and salaries at 31 December 2015 (4,600)
Cash paid for wages and salaries 265,400
W3: Purchases Rs.

Closing inventory at 31 December 2015 38,000
Cost of sales 311,000
349,000
Opening inventory at 1 January 2015 (42,000)
Purchases in the year 307,000
W4: Cash paid for materials supplies Rs.

Trade payables at 1 January 2015 43,600
Purchases in the year (W3) 307,000
350,600
Trade payables at 31 December 2015 (35,700)
Cash paid for materials 314,900
Cash paid for other expenses is the amount for expenses in the statement of
comprehensive income after deducting the depreciation charge: Rs.193,000 -
Rs.46,000 = Rs.147,000.
W5: Interest and tax payments Tax Interest
Rs. Rs.
Liability at 1 January 2015 45,000 11,200
Taxation charge/interest charge for the year 38,000 24,000
83,000 35,200
Liability at 31 December 2015 (41,000) (10,000)
Tax paid/interest paid during the year 42,000 25,200

Answers
5.2 NARDONE LIMITED

Nardone Limited: Statement of cash flows for the year ended 31 December
2015
Rs.000 Rs.000

Profit before taxation 303
Adjustments for:
Depreciation 74
Interest charges in the statement of comprehensive 23
income
Losses on disposal of non-current assets 4
404
Increase in receivables (38 – 29) (9)
Increase in inventories (19 – 16) (3)
Decrease in trade payables (17 – 12) (5)
Cash generated from operations 387
Taxation paid (W1) (70)
Interest charges paid (23)
Net cash flow from operating activities 294
Cash flows from investing activities
Purchase of non-current assets (98)
Proceeds from sale of non-current assets (W2) 2
Net cash used in (or received from) investing activities (96)
Cash flows from financing activities
Proceeds from issue of shares (323 – 232) 91
Repayment of loans (320 – 70) (250)
Dividends paid to shareholders (52)
Net cash used in (or received from) financing activities (211)
Net increase/(decrease) in cash and cash equivalents (13)
Cash and cash equivalents at beginning of the year 32
Cash and cash equivalents at the end of the year 19
Workings
W1: Taxation paid Rs.000
Taxation payable at the beginning of the year 76
Tax charge for the year (statement of comprehensive
income) 87
163
Taxation payable at the end of the year (93)
Therefore tax paid during the year 70
W2: disposal of machinery Rs.000

Cost of machinery disposed of 18
Accumulated depreciation on machinery disposed of (12)
Net book value at disposal 6
Loss on disposal 4
Therefore cash received from the disposal 2

5.3 HOT SAUCE LIMITED

Hot Sauce - Statement of cash flows for the year ended 31 December 2015
Rs.000 Rs.000
Adjustments for:
Depreciation 401
Loss on sale of plant (W1) 4
Interest charges in the statement of comprehensive
income 156
1,756
Increase in receivables (184 – 147) (37)
Increase in inventories (843 – 203) (640)
Decrease in trade payables (W2) (41)
Taxation paid (W3) (470)
Interest charges paid (W4) (126)
Net cash flow from operating activities 442
Purchase of non-current assets (1,200)
Proceeds from sale of non-current assets (see W1) 41
Net cash used in (or received from) investing activities (1,159)
Proceeds from issue of shares (W5) 300
Bank loan raised 65
Repayment of loans (W6) (235)
Dividends paid to shareholders (230)
Net cash used in (or received from) financing activities (100)
Net increase/(decrease) in cash and cash equivalents (817)
Cash and cash equivalents at beginning of the year 51
Cash and cash equivalents at the end of the year (766)
Rs.
WorkingsW1: Gain or loss on disposal
Cost of asset disposed of 69
Accumulated depreciation on asset disposed of (24)
Carrying amount at date of disposal 45
Disposal proceeds (41)
Therefore loss on disposal 4
W2: Increase or decrease in trade payables Rs. Rs.

Trade payables and accruals at 31 December 2015 141
Less accrued interest (54)
87
Trade payables and accruals at 31 December 2014 152
Less accrued interest (24)
(128)
Decrease in trade payables and accruals (41)

Answers
Tutorial note
The accrued interest is removed from the figures because accrued interest is
relevant to the amount of interest paid in the year. This is a separate item in the
statement of cash flows.
W3: Taxation paid Rs.
Current taxation liability at 31 December 2014 470
Taxation charge in the year 602
1,072
Current taxation liability at 31 December 2015 (602)
Therefore taxation paid in the year 470
W4: Interest paid Rs.

Accrued interest liability at 31 December 2014 24
Interest charge in the year 156
180
Accrued interest liability at 31 December 2015 (54)
Therefore interest paid in the year 126
W5: Proceeds from the issue of shares Rs. Rs.

Ordinary share capital at 31 December 2015 940
Share premium at 31 December 2015 100
1,040
Ordinary share capital at 31 December 2014 740
Share premium at 31 December 2014 0
(740)
Proceeds from the issue of shares 300
W6: Loans repaid Rs.

Loans at 31 December 2014 320
New loan during the year 65
385
Loans at 31 December 2015 (150)
Therefore loans repaid during the year 235

5.4 QUETTA TRACK LIMITED
Quetta Track Limited: Statement of cash flows for the year ended 30 June 2015
Rs.000 Rs.000
Net profit before tax 14,400
Adjustments for
Depreciation Rs.(3,000 + 1,000) 4,000
Profit on sale of non-current assets (W3) (100)
———
Operating profit before working capital adjustments 19,300
Increase in inventories (5,000)
Increase in trade receivables (7,250)
Decrease in trade payables (3,000)
———
Interest paid (W5) (500)
Income taxes paid (W4) (1,200)
———
Net cash from operating activities 2,350

Purchase of property (10,000)
Purchase of plant and equipment (W1) (1,000)
Proceeds from sale of plant and equipment (W3) 350
———
Net cash used in investing activities (10,650)

Part repayment of loan (4,000)
———
———
Net cash used in financing activities (4,000)
———
Net decrease in cash and cash equivalents (12,300)
Cash and cash equivalents at beginning of year 1,300

———
Cash and cash equivalents at end of period (11,000)
———

Answers
Workings
(1) Plant and machinery – Cost
ii) Rs.000 Rs.000

Bal b/d 5,000 Disposal 1,000
Additions (E) 1,000 Bal c/d 5,000
——– ——–
6,000 6,000
——– ——–
(2) Plant and machinery – Accumulated depreciation
iii) Rs.000 Rs.000

Disposal 750 Bal b/d 2,000
Bal c/d 2,250 Depreciation charge for year (E)1,000
——– ——–
3,000 3,000
——– ——–
(3) Plant and machinery – Disposals
iv) Rs.000 Rs.000

Cost 1,000 Accumulated depreciation 750
Profit on sale 100 Proceeds 350
——– ——–
1,100 1,100
——– ——–
(4) Tax payable
v) Rs.000 Rs.000
Cash paid (E) 1,200 Bal b/d 1,000
Bal c/d 1,800 Tax charge to P&L 2,000
——– ——–
3,000 3,000
——– ——–
(5) Interest payable
vi) Rs.000 Rs.000

Cash paid (E) 500 Bal b/d 200
Bal c/d 700 Charge to P&L 1,000
——– ——–
1,200 1,200
——– ——–

5.5 MARDAN SOFTWARE LIMITED
Marden Software Limited: Statement of cash flows for the year ended 31 December
2015
Rs.000 Rs.000
Cash flow from operating activities
Net profit before tax 1,381
Adjustments for
Depreciation charges (111 + 351) (W1, W2) 462
Profit on sale of machinery (W1) (19)
Loss on sale of fixtures (W2) 5
———
Increase in inventories (660)
Increase in trade receivables (773)
Increase in trade payables 4
———
Cash generated from operations 400
Income tax paid (W3) (255)
———
Net cash from operating activities 145

Purchase of plant and equipment (312 + 366) (W1, W2) (678)
Proceeds from sale of plant and equipment (203 + 95) 298
(W1, W2)
———
Net cash used in investing activities (380)

Equity dividends paid (W4) (300)
Proceeds from issuance of ordinary share capital 400
———
100
———
Net decrease in cash and cash equivalents (135)
Cash and cash equivalents at beginning of year (1,050 + 1,247

197)
———
Cash and cash equivalents at end of year (600 + 512) 1,112
———
Workings
(1) Plant and equipment (carrying amt.)
Rs.000 Rs.000
Balance b/f 2,086 P & E – disposal 184
Bank – purchase 312 Depreciation (Eal fig) 111
Balance c/f 2,103
——– ——–
2,398 2,398
——– ——–

Answers
Plant and equipment – Disposal
Rs.000 Rs.000
P & E – Carrying amt. 184 Cash – proceeds 203
Gain on disposal 19
—— ——
203 203
—— ——
(2) Fixtures and fittings (Carrying amount)
Rs.000 Rs.000
Balance b/f 1,381 F & F – disposal 100
Bank – purchase (Bal. figure) 366 Depreciation 351
Balance c/f 1,296
——– ——–
1,747 1,747
——– ——–
Fixtures and fittings – Disposal
Rs.000 Rs.000
F & F – Carrying amt. 100 Cash – proceeds 95
Loss on disposal 5
—— ——
100 100
—— ——
(3) Tax payable
Rs.000 Rs.000
Bank – tax paid (Eal fig) 255 Balance b/f 257
Balance c/f 312 P&L a/c 310
—— ——
567 567
—— ——
(4) Dividends paid
Rs.000 Rs.000
Bank – dividends paid (Eal fig) 300 Balance b/f 132
Balance c/f 154 2015 dividend 322
—— ——
454 454
—— ——

5.6 TARBELA TRADERS
Tarbela Traders: Statement of cash flows for the year ended 31 December 2015
Rs.000 Rs.000
Net profit 25,200
Adjustments for
Depreciation 7,000
Net loss on disposals 310
———
Operating profit before working capital changes 35,510
Decrease in trade receivables (11,960 – 14,410) 2,450
Decrease in inventories (19,770 – 27,500) 7,830
Increase in trade payables ((32,050 – 400) – 20,950) 10,700
———
Interest paid (3,000 – 400) (2,600)
———

Purchase of long-term investments (25,000 – 17,000) (8,000)
Purchase of equipment and cars
(36,400 (W1)+ 19,860 (W2)) (56,260)
Proceeds from sale of equipment and cars (W3) 6,900
————

Capital and other drawings (6,500 – 15,130) (21,630)
Borrowings repayment (3,000)
————
————
Cash and cash equivalents at beginning of period

(3,600 + 1,800) 5,400
————
Cash and cash equivalents at end of period
(4,800 + 700 – 28,200) (22,700)
————

Answers
Workings
(1) Equipment (WDV)
vii) Rs.000 Rs.000

Depreciation 3,000
——– ——–
54,000 54,000
——– ——–
(2) Motor vehicles (WDV)
viii) Rs.000 Rs.000

Depreciation 3,000
——– ——–
23,940 23,940
——– ——–
(3) Disposals
ix) Rs.000 Rs.000

Equipment 5,200
Motor vehicle 2,010 Loss on disposal (vehicles) 740
Profit on disposal (equipment) 430 Proceeds (E) 6,900
——– ——–
7,640 7,640
——– ——–
Tutorial note: Alternatively, consider 2 separate disposal a/cs.

5.7 THE SINDH ROBOTICS COMPANY
The Sindh Robotics Company: Statement of cash flows for the year ended 31
December 2014
Rs.000 Rs.000
Cash receipts from customers (W1) 190,000
Cash paid to suppliers and employees (W2) (155,000)
————
Interest paid (13,000)
Dividends paid* (20,000)
————
Purchase of property and plant (40,000 + 1,000) (41,000)
Purchase of investments (30,000)
————
Proceeds from issued shares (10,000 + 2,000) 12,000
Proceeds from long-term borrowings 50,000
————
Net cash from financing activities 62,000
————
Cash and cash equivalents at 1 January 2014 3,000
————
Cash and cash equivalents at 31 December 2014 (4,000)
———
* Could be shown as a financing cash flow.

Answers
Workings (1) Receipts from sales

Receivables control
Rs.000 Rs.000
Balance b/d 40,000 Cash receipts (Eal fig) 190,000
Sales 200,000 Balance c/d 50,000
_______ ________
240,000 240,000
———— ————
(2) Payments
Payables and wage control
Rs.000 Rs.000
Cash paid (Eal fig) 155,000 Balance b/d 40,000
Depreciation * 2,000 Purchases (W3) 130,000
Balance c/d 60,000 Expenses 47,000
________
________ 217,000
217,000 ————
————
(3) Cost of sales
Rs.000 Rs.000
Opening inventory 55,000 Cost of sales 120,000
Purchases and wages 130,000 Closing inventory 65,000
________ ________
185,000 185,000
———— ————
* Alternatively, depreciation could be adjusted against cost of sales.

5.8 ABIDA
Cash flow for year ended June 30, 2015
Profit for the year 256,800
Depreciation 17,500
Loss on sale of furniture 6,800
Increase/decrease in working capital
Decrease in inventories 21,600
Increase in payables 8,900
Increase in receivables (11,700)
18,800
299,900
Add: Proceeds from sale of non-current
assets 12,000
311,900
Less: Purchase of non-current assets (W) 28,900
Payment of long term loan 75,000
Drawings 120,000
223,900
Net increase in bank balance 88,000
W Non-current assets
Decrease in assets 7,400 Depreciation 17,500
Purchase of assets –
balancing figure 28,900 Sale of furniture 12,000
Loss on above sale 6,800
36,300 36,300

Answers
5.9 MR MOSSANI
Statement of cash flows for the year ended 31 December 2015

Rs.000 Rs.000
Net profit for the year (W1) 220,200
Adjustments for
Depreciation – equipment (24,000 + 9,200 – 18,000) 15,200
– furniture 8,000
Loss on sale of equipment (23,000 – 9,200 – 6,500) 7,300
Gain on sale of investments (7,500)
Insurance claim over book value (60,000 – [64,000 –
15,000]) (11,000)

Decrease in bills payable (2,100)
Decrease in accrued expenses (6,500)
Increases in receivables (13,400)
Increase in inventory (5,600)

Insurance claim against furniture 60,000
Sale of investments (16,900 + 7,500) 24,400
Sale of equipment 6,500
Capital Expenditure – purchase of equipment
(86,000 + 23,000 – 43,000) (66,000)
Capital Expenditure – purchase of furniture
(80,000 + 64,000 – 64,000) (80,000)

Capital invested (payment of long-term loan) 12,000
Payment of long-term loan (22,000)
Drawings / withdrawals of capital (15,000 x 12) (180,000)

Cash and cash equivalents at end of period 5,200
Working
W1: Profit for the year Rs.
Capital b/f 83,800
Capital introduced (loan repayment) 12,000
Less: drawings (180,000)
Profit for the year (balancing figure) 220,200
Capital c/f 136,000

5.10 SAKHAWAT HUSSAIN
Statement of cash flows for the year ended December 31, 2015
Rs.000 Rs.000
Net profit before tax 1,400,000
Adjustments for
Depreciation on non-current assets
(2,950,000 – 2,450,000)+200,000+(960,000 –
160,000) 1,500,000
Profit on sale of investment (70,000)
Profit on sale of non-current assets (90,000)
Interest expense (180 + 200 – 150) 230,000
Operating profit before working capital adjustments 2,970,000

Increase in current assets 80% of (4,750,000 –
2,850,000) (1,520,000)
Cash generated from operations 1,850,000

Interest paid (180,000)
Net cash from operating activities 1,670,000

Purchase of non-current assets
(9,750,000 + 200,000 + 960,000 – 9,600,000) (1,310,000)
Purchase of investment
(2,600,000+250,000 – 2,500,000) (350,000)
Proceeds from sale of investment 320,000
Proceeds from sale of non-current assets 250,000 (1,090,000)
Net cash used in investing activities

Capital introduced 1,000,000
Withdrawal by owner against profits (1,200,000)
Net increase in cash and cash equivalents 380,000

Cash and cash equivalents at end of period 950,000
Working: Profit for the year
Closing balance 1,100,000
Drawings 1,200,000
2,300,000
Less: opening balance 900,000
Net profit for the year 1,400,000

Answers
5.11 MR JUNAID JANJUA
Statement of cash flows for the year ended 31 December 2015

Rs. Rs.
Net income 950,000
Depreciation (170,000 + 60,000) 230,000
Items for separate consideration:
Gain on sale of land (64,000)
Gain on sale of long term investment (32,000)
Loss on sale of equipment 15,000
(Increase) / decrease in current assets:

Accounts receivable (176,000)
Inventory (224,000)
Prepaid insurance 12,000
Office supplies (7,000)
(395,000)
(Decrease) / Increase in current liabilities:
Decrease in accounts payable (105,000)
Increase in wages payable 16,000
Net (increase) / decrease in working capital (484,000)
Cash invested 100,000
Proceeds from sale of:
Land (2,500,000 – 1,810,000 + 64,000) 754,000
Equipment (75,000 – 15,000) 60,000
Long term investments (100,000 + 32,000) 132,000 946,000
Fixed capital expenditure – building (2,800,000 –
2,300,000) (500,000)
– equipment
(1,200,000+105,000*–1,150,000) (155,000)
Long term investments (220,000 +100,000-170,000) (150,000)
Payment of long term loan (1,160,000– 985,000) (175,000)
Drawings (568,000)
Net increase in cash 113,000
Cash - opening 32,000
Cash - closing 145,000
*Book value 75,000 + accumulated depreciation 30,000 = Cost Rs. 105,000

5.12 AMIN INDUSTRIES
Amin Industries: Statement of cash flows for the year ended 31 August 2015
Rs. Rs.
Profit for the year 3,161,000
Adjustments for:
Depreciation charge 2,498,000
Profit on sale of non-current assets (1,284,000 –
867,000) (417,000)
Provision for doubtful debts (484,000 – 385,000) 99,000
Operating profit before working capital adjustments 5,341,000
Decrease in inventory 2,772,000

(Increase) in trade debts (1,944,000)
Increase in short term finance 929,000
Net cash from operating activities 7,705,000

Purchase of non-current assets (6,191,000)
Sale proceeds of non-current assets 1,284,000
Purchase of investment (4,911,000)
Net cash from investing activities (9,818,000)

Capital input 5,450,000
Withdrawals by Mr. Amin (3,120,000)
Net cash from financing activities 2,330,000
Increase in cash and cash equivalents 217,000
Opening bank balance 225,000
Closing bank balance 442,000

Answers
Workings Non-current assets – cost

Opening (12,346+5605) 17,951,000 Sale 1,500,000
Additions – balancing figure 6,191,000 Closing (15,172+7,470) 22,642,000
24,142,000 24,142,000
On assets sold (1,500-867) 633,000 Opening 5,605,000
Closing balance 7,470,000 Charge for the year 2,498,000
8,103,000 8,103,000
Trade debts
Opening (4,887+385) 5,272,000
Increase in balance 1,944,000 Closing (6,732+484) 7,216,000
7,216,000 7,216,000
Capital account – Mr. Amin

Withdrawals 3,120,000 Opening 27,942,000
Closing balance 33,433,000 Profit for the year 3,161,000
Capital introduced 5,450,000
36,553,000 36,553,000

CHAPTER 6 – INCOME AND EXPENDITURE ACCOUNTS

6.1 GILTAN GOLF CLUB
Income and expenditure account for Giltan Golf Club for year ending 31 March
2016
Rs.(000) Rs.(000)
Income
Functions surplus (367 305) 62
Sale of land (1,600 500) 1,100
Bank interest 60
Bequest 255
Sundry income 46
Subscriptions (W1) 2,860
4,383
Expenditure
Bad debts 15
Repairs 146
Telephone (67 14 + 10) 63
Heat and light (115 32 + 40) 123
Salaries and wages (2,066 12 + 14) 2,068
Sundry expenses 104
Depreciation - building 190
Depreciation - furniture 103
Depreciation - fixtures and fittings 47
(2,859)
Giltan golf club: Statement of financial position as at 31 March 2016

Non-current assets Cost Accumulated Carrying
depreciation amount
Rs.(000) Rs.(000) Rs.(000)
Land (4,000 – 500) 3,500 - 3,500
Buildings (W3) 3,800 (1,050) 2,750
Fixtures and fittings (W4) 470 (129) 341
Furniture (W5) 515 (267) 248
8,285 (1,446) 6,839
Current assets
Bank 2,402
9,241
Accumulated Fund (W2) 7,618

9,142
Current liabilities
Accruals 64
99
9,241

Answers
Workings
W1 Subscriptions account
Rs.(000) Rs.(000)
Subs in arrears b/d 80 Subs in advance b/d 30
Income and expenditure 2,860 Bank 2,930
Subs in advance c/d 35
_____ Bad debts 15
_____
2,975
_____ 2,975
_____
W2 Opening statement of affairs 2015

Assets Rs.(000)
Bank 682
Subscriptions in arrears 80
Land 4,000
Buildings (3,200 860) 2,340
Fixtures (470 82) 388
Furniture (380 164) 216
Liabilities 7,706
Accruals (58 + 30) (88)
7,618
W3 Buildings
Cost Acc. Depreciation
Rs.(000) Rs.(000)
Balance b/d 3,200 860
Extension to clubhouse 600
Depreciation (5% u 3,800) 190
3,800 1,050
W4 Fixtures and fittings
Rs.(000) Rs.(000)
Balance b/d 470 82
Depreciation (10% u 470) 47
470 129
W5 Furniture
Rs.(000) Rs.(000)
Balance b/d 380 164
Additions 135
Depreciation (20% u 515) 103
515 267

6.2 LANGTON HOCKEY CLUB
Income and Expenditure Account for the year ended 30 June 2016
Rs.(000) Rs.(000)
Income
Profits from tea stall (W1) 260
Profit from annual fair (2,150 - 1,450) 700
Profit on sale of table tennis table (40 - 30) 10
_____
3,070
Expenditure
Rent (600 + 40 - 50) 590
Net expense of outings (370 - 300) 70
Prizes for whist evenings 90
Repairs to snooker table 35
Refreshments 240
Depreciation (W2) 556
___
1,581
_____
Excess of income over expenditure 1,489
_____
Statement of financial position as at 30 June 2016

Rs.(000) Rs.(000)
Assets
Non-current assets
Sports equipment 2,224
Current assets
Inventories for tea stall 60
Subscriptions due (4 u 20) 80
Prepayments - rent 50
Bank (W3) 1,805
______
1,995
_____
Total assets 4,219
_____
Accumulated fund b/f (W5) 2,540
Excess of income over expenditure 1,489
_____
4,029
Current liabilities
Trade payables (tea stall) 190
_____
_____

Answers
Workings
(W1) Tea stall
Rs.(000) Rs.(000)
Purchases (900 - 110 + 190) 980
_____
1,100
Less: Closing inventory 60
_____
Cost of sales 1,040
_____
Sales 1,040 u 100

80
1,300
Cost of sales 1,040
_____
Gross profit 1,300 u 20% 260
_____
(W2)
Opening value of sports equipment 2,560
Less: Table tennis table disposed of (30)
Add: Purchase of new table tennis table 250
_____
2,780
Less: Depreciation (20% u 2,780) 556
_____
Book value at 30 June 2016 2,224
_____
(W3)
Cash account
Rs.(000) Rs.(000)
Opening balance 30 Table tennis table 250
Contribution to outings 300 Rent 600
Annual fair takings 2,150 Tea stall purchases 900
Tea stall sales (W1) 1,300 Annual fair 1,450
Subscriptions (1,520 + Outings 370
400) 1,920 Prizes 90
Sale of table tennis 40 Repairs 35
table Refreshments 240
_____ Bal c/f (bal fig) 1,805
_____
5,740
_____ 5,740
_____
(W4) Subscriptions account

Rs.(000) Rs.(000)
Income and expenditure Bal. b/f - Family (2 u 50,000) 100
(bal fig) 2,100 Bank - Family (8 u Rs.50,000) 400
Bank - Individual (76 u 20,000) 1,520
80
Bal. c/f - Individual (4 u 20,000) _____
_____
2,100
_____ 2,100
_____

(W5) Opening accumulated fund

Rs.(000)
Sports equipment 2,560
Inventory for tea stall 120
Subscriptions in advance (2 u 50,000) (100)
Rent prepaid 40
Bank 30
Payables for the tea stall (110)
_____
2,540
_____
6.3 GULSHAN CRICKET CLUB

Receipt & payment account for the year ended June 30, 2015
Balance b/d 1,204,800 Additions: to:
Building 753,000
Subscriptions received 3,605,000 Sports Equipment 186,800
Books 256,000
Investments made 436,000
Expenses (payments)
Balancing 1,591,500
Balance c/d 1,586,500
4,809,800 4,809,800
Income & expenditure account for the year ended June 30, 2015
Expenses A/c 1,558,200 Subscription
(600 x 6000 + 10 x 3000) 3,630,000
Dep.
Exp. -Building 338,850
-Furniture 301,200
-Sports
Equipment 398,800
-Books 138,550
Surplus of Income over

Exp. 894,400
3,630,000 3,630,000

Answers
Workings
Building Account
6,024,00 Depreciation
Balance b/d 0 (6,438,150×5/95) 338,850
Addition 753,000
6,777,00
0 6,777,000
Sports Equipment Account

Balance b/d 0 (1,595,200 u 20/80 398,800
Addition 186,800
1,994,00
0 1,994,000
Furniture Account
Balance b/d 0 (2,710,800 u 10/90 301,200
3,012,00
0 3,012,000
Books Account
Depreciation
Balance b/d 1,129,500 (1,246,950 u 10/90 138,550
Addition 256,000
1,385,500 1,385,500
Subscription Account
Sub. Receivables -
Balance b/d 326,000 Adv. Subscription - b/d 86,000
Income & Exp. Account 3,630,000 Cash Received 3,605,000
Adv. Subscription - Sub. Receivables -
Balance c/d 92,000 Balance c/d 357,000
4,048,000 4,048,000
Expenses Account
Balance b/d 122,000 Balance b/d 186,900
Payment made (Rcpt. & Income & Exp A/c (Bal.
Pay. A/c) 1,591,500 Amount) 1,558,200
Balance c/d 207,600 Balance c/d 176,000
1,921,100 1,921,100

6.4 SEHAT CLUB
Sehat Club: Income and Expenditure Account for the year ended 30 June 2015
Amount Amount
Expenditure Income
(Rs.) (Rs.)
Salaries (63.5+4-17.5) 50,000 Subscriptions (201+8-15) 194,000
Rent (34+2-11) 25,000 Entrance fees (63+3) 66,000
Travelling expenses 1,500 Donation (38+12) 50,000
Printing and stationary 1,000 Interest (16-11) 5,000
General charges 2,500 Gain on trade-in of furniture 700
Periodicals 500
Depreciation on furniture *7,820
Depreciation on sports 3,000
equipment
Loss on furniture disposed 2,380
of (2880 - 500)
Excess of income over 222,000
expenditure
315,700 315,700
Sehat Club: Statement of financial position as at 30 June 2015

Assets Rupees
Furniture (see account below) 30,000
Sports equipment (20-3+12) 29,000
Investments (100+200) 300,000
Entrance fee receivable 3,000
Bank balance 30,500
400,500
Equity and liabilities Rupees

General fund
Opening balance 172,500
Add: Excess of income over expenditure 222,000 394,500
Liabilities:
Salaries payable 4,000
Rent payable 2,000
400,500
Furniture Account
Rupees Rupees
Balance b/d Asset disposed off (4,000 – 2,880
40,000 800 – 320)
New furniture 6,700 Asset exchanged 6,000
Depreciation expense *7,820
Balance c/d 30,000
46,700 46,700
* Depreciation on furniture:
20% of (40,000+6,700–3,200–6,000) = 7,500+320 (i.e. 10% of Rs. 3,200).

Answers
6.5 AB SPORTS AND SOCIAL CLUB
AB Sports and social club: Income and expenditure account
Rs. Rs.
Shop and cafe profit (W2) 9,200
Sale of sportswear (W3) 1,400
Hire of sportswear (W4) 1,700
Interest on deposit account 800
23,820
Rent of clubhouse 6,000

Heating oil (1,000 4,000 200 700) 4,500
Grounds person 10,000
Bad debts (unpaid subscriptions = 10 +20) 30
Depreciation 500
21,030
Net surplus 2,790
AB Sports and Social Club statement of financial position as at 31 December 2014

Non-current assets Rs. Rs.
Equipment for grounds person
Cost 5,000
Depreciation 4,000
1,000
Current assets
Heating oil 700
New sportswear 2,000
Hire sportswear 1,500
Subscriptions due 90
Bank
Current account 1,300
Deposit account 16,000
26,590
27,590
Accumulated fund b/f 23,150
Surplus for year 2,790
25,940
Current liabilities
Shop and cafe 800
Sportswear 450
Heating oil 200
Subscriptions prepaid 200
1,650
27,590

Workings
(W1) Subscriptions
Summary subscriptions account

Rs. Rs.
Opening balance (10 + 230) 240 Opening balance 40
Income for period 10,720 Bank 11,000
Bad debts (10 + 20) 30
Closing balance 200 Closing balance 90
11,160 11,160
(W2) Shop and cafe results
Rs. Rs.
Sales 20,000
Opening inventory 7,000
Purchases (9,000 800 1,000) 8,800
15,800
Closing inventory 5,000

10,800
Profit (gross) 9,200
(W3) Sale of sportswear
Rs. Rs.
Sales 5,000
Purchases (4,500 450 300) u 2
3
3,100
6,100
Closing inventory 4,000

2,100
Profit (gross) 2,900
Loss on sportswear transferred 1,500
Profit 1,400
(W4) Hire of sportswear
Rs. Rs.
Rentals 3,000
Opening balance 750
Additions of cost (4,500 450 300) u 1
3
1,550
2,300
Closing inventory at valuation 1,000

1,300
Surplus 1,700

Answers
6.6 GD SPORTS CLUB

(a) The GD sports club: Cafe trading account for the year ended
31 March 2015
Rs. Rs.
Sales (W1) 9,740 + 397 10,137
Purchases (W3) 7,295
7,215
Cafe profit 2,922
(b) Income and expenditure account for the year ended 31 March 2015
Income Rs. Rs.
Subscriptions (W2) 500
Profit
From cafe 2,922
Building society interest 350
3,772
Expenditure
Rent of premises 1,000
Heat and light (262 – 34 + 41) 269
Repairs to snooker tables 176
Referees’ fees and expenses 675
Trophies etc. 424
Refreshments for visitors 235
Bad debts (unpaid subscriptions) 10
Depreciation (10% u (4,000 + 100)) 410
3,199
Surplus for the year 573
(c) Statement of financial position at 31 March 2015
Assets Rs. Rs.
Non-current assets:
Equipment at 1 April 2015 4,000
Additions in year – Dartboards 100
4,100
Less: Depreciation (410)
3,690
Current assets:
Cafe inventory 920
Building society deposit 5,200
6,120
9,810
Accumulated fund:
Surplus at 1 April 2015 (W4) 8,726
Surplus for the year 573 9,299
Payables
Cafe 470
Heat and light 41
511
9,810

Workings
(W1)
Cash account
Rs. Rs.
Balance b/d Cash Nil Payments as per note 2 10,577
Subscriptions (W2) 440 Balance c/d Cash Nil
Cafe sales
At cost 397
At normal selling price (bal fig) 9,740
10,577 10,577
Tutorial note: Sales have been found as a balancing figure from the cash
account. An alternative approach is to use the profit margin supplied in the
question. Total purchases need to be computed (W3) and then calculate:
Purchases Sales
Rs. Rs.
At cost 397 397
100
At margin 6,818 u 9,740
70
7,215 10,137
(W2)
Subscriptions account
Rs. Rs.
Income and expenditure Balance b/d
account (bal fig) (Subs in advance (10 u
500 Rs.5)) 50
Cash receipts
((100 10 2) u Rs.5) 440
Bad debt (2 u Rs. 5) 10
500 500
(W3)
Cafe purchases account
Rs. Rs.
Cash payments 7,455 Balance b/d 630
Balance c/d 470 Purchases (bal fig) 7,295
7,925 7,925
(W4) Accumulated fund at 31 March 2015

Rs.
Equipment 4,000
Cafe inventory 840
Building society account 4,600
Payables - Cafe (630)
Payables - Heat and light (34)
Subscriptions in advance (50)
8,726

Answers
6.7 HB TENNIS CLUB
(a) HB Tennis Club income and expenditure account for the six months
ended 30 September 2015
Rs. Rs.
Income
Net income from tournaments (465 132) 333
Bank interest
Profit from sale of club ties (W2) 103
Life membership (W3) 210
7,739
Expenditure
Groundsman’s wages (4,520 40) 4,560
Rent and rates (636 68) 568
Heating and lighting (674 53) 727
Postage and stationery (41 12) 53
Court maintenance 1,000
Depreciation of equipment (W4) 403
(7,311)
Excess of income over expenditure 428
(b) HB Tennis Club statement of financial position as at 30 September 2015

Rs. Rs.
Non-current assets
Equipment at cost 4,080
Accumulated depreciation (403)
3,677
Current assets
Inventory of ties ( 40 100 u 450) 180
Subscriptions in arrears (5 u 300 u 6
12
) 750
Rates paid in advance 68
Balance at bank 6,148
7,146
10,823
Accumulated fund
Excess of income over expenditure 428
Life membership fund (W3) 3,990
4,418
Current Liabilities
Subscriptions in advance (12,600 u 6
12
) 6,300
Accrued expenses (40 12 53) 105
6,405
10,823

(W1) The subscriptions received of Rs.12,600 are for a full year and we are also
told that 5 subscriptions were paid after 30 September.
Rs.
Subscriptions paid for 6 month period ( 6 12 u 12,600) 6,300
Subscriptions in arrears (5 u 6 12 u 300) 750
Subscription income 7,050
Alternatively this may be presented:
Rs. Rs.
Income and expenditure 7,050 Bank 12,600
Bal c/d subscriptions in Bal c/d subscriptions in
advance ( 12 u 12,600) 6,300 arrears (5 u 300 u 12 )
6 6
750
13,350 13,350
Note also that the remaining Rs.6,300 that has been paid for subscriptions
but which relates to the six months from 1 October 2015 to 31 March 2016
will be shown as a creditor, subscriptions in advance, in the statement of
financial position.
(W2)
Rs. Rs.
Sale of ties 373
Cost of sales
Purchases 450
Closing inventory ( 40 100 u 450) (1840)
2470
Profit on sale of ties 1043
(W3) The life membership fees paid of Rs.4,200 are to be taken to the income
and expenditure account over 10 years or 120 months. Therefore the
amount to be taken to income and expenditure in this 6 month period is
6/120 u Rs.4,200 = Rs.210.
This will leave Rs.4,200 Rs.210 = Rs.3,990 in the Life membership fund
on 30 September 2015.
(W4)
Rs.
Cost of equipment 4,080
Less: Estimated scrap value 450
4,030
This is to be depreciated over 5 years or 60 months.
u 4,030 = Rs.403.
6
Depreciation charge 60

Answers
6.8 MONARCH SPORTS CLUB
Monarch Sports Club: Income and expenditure account year ended 30 June
2015
Rs. Rs.
Income
Annual subscriptions (W1) 18,400
Life membership (3,000 u 10%) 300
Entrance fees 2,500
Surplus from competitions (W2) 3,200
24,400
Expenditure
Transport 3,700
Coaching fees (2,100 150 + 450) 2,400
Repairs 800
Bad debts 100
Loss on disposal of equipment (W3) 200
(8,000)
Workings
(W1)
Rs. Rs.
Balance b/d (in arrears) 200 Balance b/d (in advance) 1,100
I + E a/c 18,400 Cash
Balance c/d (in advance) 900 Bad debts 100
Balance c/d (in arrears) 300
19,500 19,500
(W2) Competitions
Rs.
Receipts 7,500
Prizes (4,300)
Surplus 3,200
(W3) Sale of equipment

Disposals account
Rs. Rs.
NBV 1,200 Cash 1,000
Loss to I & E a/c 200
1,200 1,200
(W4) Depreciation
20% u 4,000 = 800.

6.9 LH SPORTS CLUB
(a) Surplus for the year

Rs. Rs.
Surplus per draft income and expenditure account 23,655
Add capital expenditure 4,000
Deduct depreciation
Premises 1,600
Furniture 1,800
Equipment 800
(4,200)
Less 80% joining fee (14,240)
Less net subscriptions in advance (960 300) (660)
New surplus for year 8,555
(b) LH Sports Club: Statement of financial position as at 30 April 2015

Assets
Premises 78,400
Furniture 16,200
Equipment 3,200
97,800
Current assets
Inventory 1,400
Subscriptions in arrears 300
Prepaid rates and insurance 2,280
Bank 21,295
25,275
123,075

Accumulated fund at 1 May 2014 98,000
Surplus for year 8,555
Accumulated fund at 30 April 2015 106,555
Joining fees c/f 14,240
Current liabilities
Payables 1,320
2,280
123,075
Working
Non-current assets Cost Depreciation Net
Rs. Rs. Rs.
Premises 80,000 (1,600) 78,400
Furniture 18,000 (1,800) 16,200
Equipment 4,000 (800) 3,200
102,000 4,200 97,800

Answers
CHAPTER 7 – PREPARATION OF ACCOUNTS FROM INCOMPLETE

RECORDS
7.1 SHORT QUESTIONS
a)
Rs.
Sales 98,000
Cost of sales (98,000 u 100/125) 78,400

Purchases 71,000
81,200
Less: closing inventory (bal fig) (2,800)
Cost of sales 78,400
b)
Receivables account
Rs. Rs.
Opening balance 6,100 Takings (78,500 + 5,000) 83,500
Sales (bal fig) 84,800 Closing balance 7,400
–––––––– ––––––––
90,900 90,900
–––––––– ––––––––
c)
Assets Rs. Rs.
Non-current assets 98,900
Inventory 9,300
Receivables 16,800
125,000
Liabilities
Capital 97,200
Bank loan 15,700
117,800
Assets exceed liabilities: therefore bank overdraft 7,200

7.2 IRUM
a)
Cash account
Rs.000 Rs.000
Opening balance 100 Bankings 65,400
Wages (50 x Rs.50,000) 2,500
Drawings (50 x Rs.30,000) 1,500
Cash takings (bal fig) 69,400 Closing balance 100
69,500 69,500
Total receivables account

Rs.000 Rs.000
Balance b/d 5,500 Cash takings 69,400
Sales (bal fig) 70,000 Closing balance 6,100
75,500 75,500
b)
Sales (part a) = Rs.70,000,000
Cost of sales = Rs.70,000,000 x 100/140 = Rs.50,000,000
Total payables account

Rs.000 Rs.000
Payments to suppliers 42,800 Opening balance 2,800
Closing balance 3,500 Purchases (bal fig) 43,500
46,300 46,300
Cost of sales
Rs.000
Purchases 43,500
53,900
Less: closing inventory (3,900)
(balancing figure)
Cost of sales (above) 50,000

Answers
7.3 COST STRUCTURES
(a) Greengrocer
% Rs. Rs.
Sales revenue 100 49,200
Less Cost of goods sold
Purchases 38,632
———
42,416
Less Closing inventory (5,516)
(75) ——— (36,900)
—— ———
Gross profit 25 12,300
—— ———
(b) Rival
% Rs.
100
Cost of goods sold ( u Rs.50,100 = Rs.40,080) (100) (40,080)
125
—— ———
—— ———
Opening inventory (Eal fig) 7,192

Purchases 38,326
———
45,518
———
Cost of goods sold 40,080
———
(c) Local store
% Rs.
Cost of goods sold (90) (167,814)
—— ———
Gross profit (10% u Rs.186,460) 10 18,646
—— ———
100 13,440
Opening inventory ( u Rs.16,800)
125
Purchases (Eal fig) 171,174
————
184,614
————
Cost of goods sold 167,814
————

7.4 TAHIR
Statement of comprehensive income for the year ended 30 June 2015

Rs.000 Rs.000
Revenue (74 + 16,427 + 3,024 + 54) 19,579
Purchases (14,700 + 1,606 + 470) 16,776
17,918
(16,376)
Gross profit 3,203
Less Expenses
Rent (500 – 100) 400
Rates (84 + 30) 114
Electricity 92
Wages 742
Sundry expenses 156
Depreciation (10% u Rs. 1,580,000) 158
Loan interest (5% u Rs. 1,000,000) 50
(1,712)
Net profit 1,491
Statement of financial position at 30 June 2015
Rs.000 Rs.000
Non-current assets
Intangible – Goodwill (3,192 – 1,500 – 1,142) 550
Tangible – Fixtures and fittings (1,500 + 80 – 158) 1,422
1,972
Current assets
Inventory 1,542
Receivables 74
Prepaid rent 100
Bank 2,657
Cash in hand 54
4,427
6,399
Capital account Rs.000 Rs.000

Capital introduced 5,000
6,491
Drawings (1,122 + 520) (1,642)
4,849
Non-current liability
Loan 1,000
Current liabilities
Trade payables 470
Accrued expenses (30 + 50) 80
550
Total capital and liabilities 6,399

Answers
7.5 IJAZ

Rs.000 Rs.000
Revenue (W2) 5,877
Add Purchases (W3) 3,133
4,443
(2,820)
Gross profit 3,057
Expenses (W4) 1,090
Bad debts (W6) 49
(1,199)
Net profit 1,858
Statement of financial position at 31 December 2015
Rs.000 Rs.000 Rs.000
Non-current asset
Delivery van, at cost 900
Less Depreciation (W7) (60)
840
Current assets
Inventory 1,623
Receivables 382
Less Provision for doubtful debts (W6) (19)
363
Cash at bank 572
Cash in hand 29 601
2,587
Total assets 3,427
Capital account
At 1 January 2015 (W1) 1,652
Add Profit for year 1,858
3,510
Less Drawings (W5) (1,100)
2,410
Current liabilities
Trade payables 914
Accrued expenses 103
1,017

Workings
(1) Opening statement of affairs

Rs.000
Inventory 1,310
Receivables 268
Cash 62
Bank 840
———
2,480
Less Payables (712 + 116) (828)
———
Capital at 1 January 2015 1,652
———
(2) Total sales (receivables) a/c
1 Rs.000 Rs.000
Balance b/d 268 Cheques receipts from
customers 1,416
Revenue for year (Eal fig) 5,877 Bad debt written off 30
Cash takings 4,317
Receivables c/d (412 – 30) 382
——— ———
6,145 6,145
——— ———
Balance b/d 382
(3) Total purchases (payables) a/c
2 Rs.000 Rs.000
Cash 316 Balance b/d 712
Bank 2,715 Drawings 100
Balance c/d 914 Purchases for year (Eal fig) 3,133
——— ———
3,945 3,945
——— ———
Balance b/d 914
(4) Expenses
3 Rs.000 Rs.000
Cash 584 Balance b/d 116
Bank 519 P & L a/c 1,090
Balance c/d 103
——— ———
1,206 1,206
——— ———
Balance b/d 103

Answers
(5) Drawings
4 Rs.000 Rs.000
Purchases 100
Cash a/c 600
Bank a/c 400 Balance c/d (or trf capital) 1,100
——— ———
1,100 1,100
——— ———
(6) Bad debts a/c
5 Rs.000 Rs.000
Bad debt (w/off receivables) 30 P & L a/c 49
Provision for doubtful debts
a/c (5% u 382) (increase) 19
—— ——
49 49
—— ——
(7) Depreciation
20% u 900,000 u 4/12 = Rs.60,000

7.6 RASHID
Statement of comprehensive income for the year ended 30 September 2015

% Rs.000 Rs.000
Revenue (W8) 100 142,850
Opening inventory –
Purchases (balancing figure) 115,538
Cost of sales (75) (107,138)
Expenses
Cleaning 520
Sundries 780
Depreciation
Van 1,500
Leasehold premises 3,000
Telephone (W4) 1,021
Wages (W3) 19,182
Rent and rates (W5) 1,424
Repairs (W7) 4,022
(31,449)
Net profit 4,263
Statement of financial position at 30 September 2015
Cost Depn
Rs.000 Rs.000 Rs.000
Non-current assets
Leasehold premises 150,000 3,000 147,000
Van 6,000 1,500 4,500
156,000 4,500 151,500
Current assets
Inventory 8,400
Prepayment (W5) 258
Cash at bank 61,313
Cash in hand 250
80,571
Total assets 232,071
Capital account
Capital introduced 200,000
Add Net profit 4,263
204,263
Less Drawings (W2) (2,274)
201,989
Current liabilities
Accrued expenses (W4) 125
30,082

Answers
Workings
(1) Cash
6 Rs.000 Rs.000
Balance b/d Nil Wages (75 u 52) 3,900
Total sales (Eal fig) 132,500 Cleaning (10 u 52) 520
Sundries (15 u 52) 780
Drawings (25 u 52) 1,300
Bank 125,750
Balance c/d 250
———— ————
132,500 132,500
———— ————
(2) Drawings
7 Rs.000 Rs.000
Cash 1,300 Balance c/d (or trf capital) 2,274
Bank 323
Total purchases (W6) 651
——— ———
2,274 2,274
——— ———
(3) Wages
8 Rs.000 Rs.000
Cash 3,900 P & L a/c 19,182
Bank 15,282
——— ———
19,182 19,182
——— ———
(4) Telephone
9 Rs.000 Rs.000
Bank 896 P & L a/c 1,021
Balance c/d 125
——— ———
1,021 1,021
——— ———

(5) Rent and rates
10 Rs.000 Rs.000
Bank 1,682 P & L a/c 1,424
Balance c/d 258
——— ———
1,682 1,682
——— ———
(6) Total purchases (payables)
11 Rs.000 Rs.000
Bank 86,232 Trading a/c 115,538
Balance c/d 29,957 Goods for own use (Eal fig) 651
———— ————
116,189 116,189
———— ————
(7) Repairs
12 Rs.000 Rs.000
Bank 3,637 P & L a/c 4,022
Bank 385
——— ———
4,022 4,022
——— ———
(8) Total sales (receivables)
13 Rs.000 Rs.000
Trading a/c (Eal fig) 142,850 Cash (W1) 132,500
Balance c/d 10,350
———— ————
142,850 142,850
———— ————

Answers
7.7 MUDASSAR

Rs.000 Rs.000
Revenue (W4) 21,910

Cost of sales
15,010
(13,810)
Gross profit 8,100
Less Expenditure
Rent (800 + 20 – 30) 790
Rates 400
Insurance 200
Bank charges 100
Assistant’s wages 1,800
Discounts (net) (300 – 200) 100
Sundry expenses 250
Depreciation
Car 400
Fixtures 600
(4,640)
Net profit 3,460
Rs.000 Rs.000
Non-current assets
Motor car 3,200
Fixtures 3,400
6,600
Current assets
Inventory 1,200
Trade receivables and prepayments (150 + 30) 180
Insurance company claim (W2) 460
Bank 400
2,240
Total assets 8,840
Capital account b/f (W1) 9,160

Add Capital introduced 1,000
10,160
Profit for the period 3,460
13,620
Less Drawings (2,500 + 2,400) 4,900
8,720
Current liabilities
Trade payables 120

Workings
(1) Statement of affairs as at 31 December 2014

Rs.000
Motor car 3,600
Fixtures 4,000
Inventory 900
Receivables 90
Prepayments 20
Bank 280
Cash 380
———
9,270
Less Trade payables (110)
———
9,160
———
(2) Cash a/c
14 Rs.000 Rs.000
Balance b/f 380 Wages 1,800
Customers’ receipts 21,550 Sundry expenses 250
Purchases 300
Drawings 2,400
Bankings 16,720
Defalcation (theft!) 460
——— ———
21,930 21,930
——— ———
(3) Total purchases (payables)
15 Rs.000 Rs.000
Cash 300 Balance b/f 110
Bank 13,600 Purchases 14,110
Discounts received 200
Balance c/d 120
——— ———
14,220 14,220
——— ———
(4) Total sales (receivables)
16 Rs.000 Rs.000
Balance b/f 90 Receipts 21,550
Sales 21,910 Discounts allowed 300
Balance c/f 150
——— ———
22,000 22,000
——— ———

Answers
7.8 ASLAM

Rs.000 Rs.000 Rs.000
Work done (= Revenue) (W3) 13,066
Direct expenses
Materials (W2) 5,779
Wages and Social Security (3,346 – 65) 3,281 9,060
Van expenses
Running costs (342 + 36) 378
Depreciation 108 486
Miscellaneous expenses
Electricity 56
Depreciation of cement mixer 50
Rent 104
General expenses (14 + 110) 124 334
(9,880)
Net profit for the year 3,186
Rs.000 Rs.000 Rs.000
Non-current assets Cost Depn
Van 856 108 748
Cement mixer 200 50 150
1,056 158 898
Current assets
Inventory 560
Balance at bank 204
Cash in hand (W1) 10
1,974
Total assets 2,872
Rs.000 Rs.000
Capital account
Capital introduced 150
Add Profit for the year 3,186
3,336
Less Drawings (936 – 104 + 65 + 342) (1,239)
2,097
Non-current liability
Loan account – mother 400
Current liabilities
Trade payables 149
Accrued expenses 36
Van instalments (5 u 38) 190
375
2,872

Workings
(1) Cash a/c
17 Rs.000 Rs.000
Bank a/c (cash from bank) 3,100 Bank a/c (bankings) 9,204
Work done a/c (Eal fig = Wages a/c 3,281
takings) 11,866 Drawing a/c (private NIC) 65
Materials a/c 1,400
Electricity a/c 56
General expenses a/c 14
Drawings a/c (52 u 16) 832
Rent a/c 104
Balance c/d (cash in hand) 10
——— ———
14,966 14,966
——— ———
(2) Materials a/c
18 Rs.000 Rs.000
Cash a/c 1,400 Balance c/d (inventory) 560
Bank a/c 4,790 P & L a/c 5,779
Balance c/d (liability) 149
——— ———
6,339 6,339
——— ———
(3) Work done a/c
19 Rs.000 Rs.000
P & L a/c 13,066 Cash a/c 11,866
Balance c/d 1,200
——— ———
13,066 13,066
——— ———

Answers
7.9 UMAR
To get sales and purchases, start with the cash account and then move on to the
total accounts. Many incomplete records questions require the use of these
“collection” accounts to find missing balances.
(a) Capital at 1 January 2015

Assets Liabilities
Rs.000 Rs.000
Operating overdraft 1,172
Cash in till 20
Inventories 4,500
Brough’s loan
Principal 4,000
Accrued interest (40000 u 3% u 3/12) 30
Accrued general expenses 240
Rates in advance 40
Fixtures 2,800
Accrued light and heat 80
10,160 7,322
(7,322)
Net assets – Capital account 2,838
(b) Statement of comprehensive income for the year ended 31 December 2015
Rs.000 Rs.000 Rs.000
Revenue (W2) 39,156
35,920
(30,120)
Gross profit 9,036
Administrative expenses
Rent and rates (475 + 40 – 50) 465
Light and heat (210 – 80 + 70) 200
Wages 2,950
Depreciation of fixtures (2,880 + 100 – 350
2,550)
Sundry expenses (140 + 800 – 240 + 190) 890 4,855
Financing costs
Loan interest 120
Bad debt 200
Discounts (net) (520 – 480) 40 360
(5,215)

(c) Statement of financial position at 31 December 2015

Rs.000 Rs.000
ASSETS
Non-current assets
Tangible assets at cost less depreciation
Fixtures 2,550
Current assets
Inventories 5,800
Prepayment 50
Cash (993 – 320 + 20) 693 9,543
Total assets 12,093
CAPITAL AND LIABILITIES

Capital account
At 1 January 2015 (per (a)) 2,838
Add Net profit for the year (per (b)) 3,821
6,659
Less Drawings (156 + 900) (1,056)
5,603
Loan – Brough 4,000
Current liabilities
Trade and other payables (2,200 + 190 + 70 + 30) 2,490
Workings
(1) Cash and bank a/cs
Cash Bank Cash Bank

Rs.000 Rs.000 Rs.000 Rs.000
Balance b/f 20 Balance b/f 1,172
Bank (cheques cashed)250 Purchases 30,540
Cash (bankings) 35,170 Rent and rates 475
Sales (cash takings)38,416 Fixtures 100
Light and heat 210
General expenses 140 800
Loan interest 120
Drawings (52 u 3) 156 900
Sales (dishonoured
cheques) 180
Wages 2,950
Bank
Cheques cashed 250
Bankings 35,170
Balance c/f 20 673
——— ——— ——— ———
38,686 35,170 38,686 35,170
——— ——— ——— ———
Tutorial note: This working is not specifically required therefore no marks are
awarded to it.

Answers
(2) Sales (or total receivables) a/c
20 Rs.000 Rs.000
Balance b/f 2,800 Cash a/c (takings) 38,416
Bank a/c Discounts allowed a/c 520
(dishonoured cheques) 180 Bad debts a/c 200
Trading a/c (Eal fig) 39,156 Balance c/f 3,000
——— ———
42,136 42,136
——— ———
(3) Purchases (or total payables) a/c
21 Rs.000 Rs.000
Bank a/c 30,540 Balance b/f 1,800
Discounts received a/c 480 Trading a/c (Eal fig) 31,420
Balance c/f 2,200
——— ———
33,220 33,220
——— ———
7.10 YASIN

Rs.000 Rs.000
Revenue (W1) 25,965
Purchases (15,346 (W2) + 165 – 104) 15,407
———
17,007
——— (14,647)
———
Gross profit 11,318
Expenses
Selling and distribution costs
Wages 3,423
Wrapping materials (525 – 53) 472
Motor expenses (728 + 236) 964
Bad debts (223 + 100) 323
Depreciation of van (1,200 u 20% u 9/12) 180
——— (5,362)
Administrative expenses
Rates (500 – 125 + 100) 475
Electricity (228 + 50) 278
Depreciation of fixtures (2,600 – 200) u 10% 240
Loss on disposal of fixtures (200 – 130) 70
Loan interest (100 + 50) 150
Accountancy costs 100
——— (1,938)
———
———


Cost Depn
ASSETS Rs.000 Rs.000 Rs.000
Non-current assets
Property, plant and equipment
Freehold property 10,000 – 10,000
Fixtures (2,600 – 200) 2,400 240 2,160
Delivery van 1,200 180 1,020
——— —— ———
15,600 420 13,180
——— ——
Goodwill 2,000 – 2,000
Current assets
Inventories 2,360
Trade receivables (637 – 100) 537
Prepayments (125 + 53) 178
Cash (5,757 – 125) + 180 5,812
———
8,887
———
Total assets 24,067
———
CAPITAL AND LIABILITIES Rs.000 Rs.000
Capital
Capital at 1 January 2014 20,000
———
24,018
Drawings (1,040 + 104 + 1,329 + 36 (W3)) (2,509)
———
21,509
Loan 2,000
Current liabilities
Trade and other payables (358 + (50 + 50 + 100)) 558
———
———

Answers
Workings
(1) Trade receivables control a/c
22 Rs.000 Rs.000
Balance b/f 400 Cash received 25,505
Sales (Eal) 25,965 Bad debt 223
Balance c/f 637
——— ———
26,365 26,365
——— ———
Balance b/f 637
(2) Trade payables control a/c
23 Rs.000 Rs.000
Bank 14,863 Credit purchases (Eal) 15,346
Bank (unpresented cheque) 125
Balance c/f 358
——— ———
15,346 15,346
——— ———
Balance b/f 358
(3) Cash a/c
24 Rs.000 Rs.000
Cash received 25,505 Wrapping materials 525
Staff wages 3,423
Purchases for resale 165
Petrol and oil 236
Drawings (20 u 52) 1,040
Cash banked 19,900
Balance c/f 180
Difference (drawings) (Eal) 36
——— ———
25,505 25,505
——— ———

7.11 MUNIRA
(i) Purchases ledger control account
Rs. 000 Rs. 000
Cash 12,700 Bal b/f 8,000
Trade discount
Received Purchases (Credit)
(not to be booked) 0 Balancing figure 13,930
Bal c/f (9,500 + 470 –
740) 9,230
21,930 21,930
(ii) Sales ledger control account

Rs. 000 Rs. 000
Balance b/f 2,000 Bank (18,000 – 500 +
860) 18,360
Credit sales
(balancing figure) 20,520 Discount allowed 360
Bad debts 200
Balance c/d 3,600
22,520 22,520
(iii) Cost of Sales as per record Rs. 000s

Opening Inventory 12,500
Add: Purchases (W-1) 13,930
Goods available for sale 26,430
Less: Closing Inventory 8,500
Cost of sales – as per record 17,930
(iv) Cost of sales on mark-up basis

Description Sales
(Rs. 000)
Total normal and old inventory sales (as per (ii) above): 20,520
Sale of defective inventories:
Cost (4% of 13,930 = 557)
Normal sale price (557 x 1.20) = 668
Sales at 70% of 668 (468)
20,052
Sales to staff 315
Cost of sales at Standard Mark-up
Staff (315 u 100/105) 300
Cost of defective inventories (4% of 13,930) 557
Normal sales (20,052 u 100/120) 16,710
17,567
Less: Cost of sales as per record (see (iii) above) (17,930)
Shortage of inventory 363

Answers
7.12 ADNAN
Adnan: Statement of comprehensive income for the year ended December 31, 2015
Rs. Rs.
Sales (W) 1,774,815
Purchases (130,800+1,423,800 – 116,100) 1,438,500
1,454,200
1,426,700
Gross profit 348,115
Less expenses:
Wages 106,800
Rent (3,500×9) + (4,500×3) 45,000
Electricity & telephone (33,0000+8,800) 41,800
Depreciation (285,000×0.1)+(75,000×0.1×6/12) 32,250
(225,850)
Net profit 122,265
Adnan: Statement of financial position as at 31 December

Assets 2015 2014
Rs. Rs.
(see note)
Non-current assets (285,000 + 75,000 – 32,250) 327,750
285,000
Inventory 27,500 15,700
Bank 103,400 349,100
Cash 700 14,300
540,250 712,800
Capital and liabilities Rs. Rs.

Capital Account (Bal. Figure) 396,150 593,200
Sundry payables 130,800 116,100
Outstanding expenses:
Rent 4,500 3,500
Electricity & Telephone 8,800 -
540,250 712,800
Note: The statement of financial position for 2014 is not a part of the
requirement, but has been prepared for computing opening balance of capital.
Cash shortage Rs.

Opening Capital on December 31, 2014 593,200
Less: Drawings (122,600)
Capital on December 31, 2015 396,150
Cash shortage (196,715)

Working
Computation of sales
Cost of sales (15,700 + 1,438,500 – 27,500) 1,426,700
Sales
Cost of cash sales (20% of 1,426,700) 285,340
Adjusting for mark up u 1.22
Cash sales 348,115
Cost of credit sales (80% of 1,426,700) 1,141,360

Adjusting for margin u 100/80
Credit sales 1,426,700
Total 1,774,815
7.13 ASIF
Mr. Asif: Statement of comprehensive income for the year ended June 30, 2015
Rs. Rs.
Cash sales (W4) 709,750
Credit sales (W6) 2,996,000
Less: Returns (15,000)
3,690,750
Cost of goods sold:
Add: Purchases 2,570,000
3,052,500
Less: Closing inventory (including inventory at cost on
sale or return basis) (W1) (592,000)
2,460,500
Gross profit 1,230,250
Discounts received 30,300
1,260,550
Less expenses
Salaries 440,400
Trade expenses
(212,500+19,000 +53,800 –21,700 – 9,700 +25,000) 278,900
Interest on loan (6% of 500,000) 30,000
Provision for doubtful debts (4,200 – 3,700) 500
Loss on sale of furniture (W2) 73,600
Depreciation for year (W3) 57,700
(881,100)
379,450
Commission- (5/105 of 379,450) (18,069)

Answers

Land and building at cost 130,000
Furniture
Cost: (825-280+64) 609,000
Less: Depreciation (485-84+57.7) (458,700)
150,300
280.300
Current assets
Inventory (580,000 + 12,000) 592,000
Receivables 582,500
Less: Provision (27,000 + 500) (27,500)
555,000
Prepayments 9,700
Bank balance (3,818,150-24,200-3,249,000) 544,950
Cash in hand (W5) 10,000
1,711,650
1,991,950

Asif-capital on July 1 613,300
Add: Net profit 361,381
974,681
Less: Drawings (60,000)
914,681
6% Loan on mortgage 500,000
Add: Accrued interest (30,000–22,500) 7,500
507,500
Current liabilities
Trade payables (W7) 530,200
Accrued expense 19,000
Advance from customer 2,500
Due to manager 18,069
569,769
1,991,950
Workings:
1. Closing inventory Rs.
Inventory on premises 580,000
Add: Inventory with customers on sale or return (Rs.18,000/1.2) 12,000
592,000
2. Non-current assets disposal Rs.

Cost of furniture 280,000
Less: Three years depreciation at 10% p.a. on cost: 3×28,000 84,000
Book value on July 1, 2014 196,000
Less: Sales proceeds 122,400
Loss on sale 73,600

Rs.
3. Depreciation
(i) On Rs.825,000-Rs.280,000 = Rs.545,000 at 10% p.a. 54,500
(ii) On Rs.64,000 at 10% p.a. for six months 3,200
57,700
4. Cash Sales Rs.

Cost of goods sold 2,460,500
1/3 of selling price i.e. 33-1/3% of selling price = 50% of cost
Therefore, total sales would be (2,460,500×1.5) 3,690,750
Less: Credit sales – net (2,996,000 – returns 15,000) 2,981,000
Cash sales 709,750
5. Cash on hand Rs.

Opening Cash balance 10,000
Cash sales 709,750
719,750
Total of cash sales banked (624,750)
Drawings (60,000)
Sundry expenses (25,000)
Closing cash balance 10,000
6. Credit sales & receivables

Total Receivables Account
Rs. Rs.
Balance, 1st January, Receipt 3,071,000
2014 670,000
Advance receipts (Cr.) 2,500 Sales Return 15,000
Credit sales (balancing Balance, June 30, 2015 582,500
figure) 2,996,000
(Rs. 600,500-18,000)
3,668,500 3,668,500
7. Payables
Total Payables Account
Rs. Rs.
Discounts 30,300 Balance, July 1, 2014 500,100
Bank 2,509,600 Purchases 2,570,000
By balance, June 30,
2015 (bal.fig) 530,200
3,070,100 3,070,100

Answers
7.14 MANSOOR
Mansoor: Statement of comprehensive income for the year ended June 30,
2015
Rs. Rs.
Sales 125% of (552,000 + 5,341,000 - 670,000) 6,528,750

Purchases (288,000+5,053,000) 5,341,000
5,893,000
Closing inventory (Destroyed in fire) (670,000)
(5,223,000)
Gross profit b/d 1,305,750
Scrap sales 35,000
1,340,750
Less: expenses
Assistant's salary 132,000
Electricity (50,500 + 1,900 - 5,500) 46,900
Rent (240,500 + 15,000) 255,500
Property tax (32,000 +11,500 -15,000) 28,500
Accounting charges (20,500 + 1,800 – 11,500) 10,800
Sundry expenses 15,000
(488,700)
Loss from fire:
Fixtures (235,000 + 45,000 – 225,000) 55,000
Inventories (670,000 – 630,000) 40,000
Provision for bad debt 14,000
(109,000)
Net profit 743,050
Mansoor: Statement of financial position as at 30 June 2015

Assets Rs.
Receivables (494,000 – 14,000) 480,000
Receivable from Insurance Co. 855,000
Cash in hand 40,500
1,826,300

Capital 1,185,000
Net profit 743,050
Drawings (144,450 + 188,000) (332,450)
1,595,600
Payables:
For goods 212,000
Electricity 1,900
Accounting charges 1,800
Rent 15,000
230,700
1,826,300

Workings:
Payables
Bank 5,061,000 Opening balance 220,000
Purchases
Closing balance 212,000 (Balancing figure) 5,053,000
5,273,000 5,273,000
Receivables
Opening balance 281,000 Cash (Balancing figure) 6,315,750
Sales 6,528,750 Closing balance 494,000
6,809,750 6,809,750
Amount in Rupees
Cash and Bank
Cash Bank Cash Bank
Opening Assistant's
balance 35,000 307,500 salary 132,000
Receivables 6,315,750 Purchases 288,000
Drawings-bal
Scrap sales 35,000 figure 144,450
Cash 5,780,800 Bank 5,780,800
Drawings 188,000
Sundry
expenses 15,000
Accounting
charges 20,500
Electricity 50,500
Property tax 32,000
Rent 240,500
Payables 5,061,000
Fixtures 45,000
Closing balance 40,500 435,800
6,385,750 6,088,300 6,385,750 6,088,300

Answers
7.15 DANISH
Danish
Statement of comprehensive income
for the year ended 31 December 2013
Rupees Rupees
Opening
inventory 25,000 Sales (W - 1) 89,800
Purchases (W - 2) 69,000 less: Returns (3,000) 86,800
Closing Inventory (W -
Less returns (2,000) 67,000 5) 30,000
Gross profit c/d 24,800
116,800 116,800
Discount allowed 1,400 Gross profit b/d 24,800

Bad debts* 4,230 Discount received 1,000
Expenses
(6,000+1,200) 7,200
Rent 2,500
Depreciation
Furniture 1,500
Motor Van 3,200
Net profit 5,770
25,800 25,800
*1800+(48,600 × 5%)
Danish
Statement of financial position as at 31 December 2013
Rupees Rupees
Liabilities and
Capital Assets
Capital (W - 1) 81,500 Motor Van 16,000
Less: drawings (5,000) Less: Depreciation (3,200) 12,800
Add: net profit 5,770 82,270 Furniture and fixtures 15,000
Less: Depreciation (1,500) 13,500
Closing Inventory 30,000
Payables (W-2) 27,000 Receivables (W-3) 48,600
Accrued expenses 1,200 Less: allowance (2,430) 46,170
Cash (W - 4) 8,000
110,470 110,470
W-1 Opening Capital Rupees

Assets
Motor Van 16,000
Furniture and fixture 15,000
Inventory 25,000
Receivables 45,000
Cash 4,500
105,500
Liabilities
Payables (24,000)
Opening Capital 81,500

W -2 Payables control account

Rupees Rupees
Cash paid 63,000 Balance b/d 24,000
Discount received 1,000 Purchases (bal. fig) 69,000
Purchases return 2,000
Balance c/d 27,000
93,000 93,000
W-3 Receivables control account

Rupees Rupees
Balance b/d 45,000 Cash received 80,000
Sales (bal fig) 89,800 Discount allowed 1,400
Bad debts 1,800
Sales return 3,000
Balance c/d 48,600
134,800 134,800
W-4 Cash
Rupees Rupees
Balance b/d 4,500 Payments to suppliers 63,000
Receipts from customers 80,000 Expenses paid 6,000
Drawings 5,000
Rent paid 2,500
Balance c/d 8,000
84,500 84,500
W-5 Calculation of closing inventory

Net Sales 86,800
Net purchases 67,000

Opening Inventory 25,000
92,000
Less cost of goods sold (100/140 of net sales) 62,000
Closing Inventory 30,000

Answers
CHAPTER 8 – PARTNERSHIP ACCOUNTING – RETIREMENT, DEATH,

DISSOLUTION, AMALGAMATION AND LIQUIDATION
8.1 A AND B
(a) Revaluation Account of the Firm
Investments 437,500 Non-current assets 3,100,000
Current assets 1,750,000 Investment 400,000
Profit on revaluation
transferred to: Current assets 1,575,000
- A (3/5) 157,500
- B (2/5) 105,000
262,500
5,075,000 5,075,000
Profit / (Loss), as given in the question

(1,000,000 - 700,000 + 675,000) = 975,000
Average profit per year 325,000
Goodwill of the firm (u2) 650,000

Goodwill in original profit sharing ratio:
Share of A in firm's goodwill: 60% (3/5) 390,000
2
Share of B in firm's goodwill: 40% ( /5) 260,000
Goodwill in new profit sharing ratio:
Share of A in firm's goodwill: 35% (7/7 + 5 + 8) 227,500
5
Share of B in firm's goodwill: 25% ( /7 + 5 + 8) 162,500
8
Share of C in firm's goodwill: 40% ( /7 + 5 + 8) 260,000
Partners’ Capital Account (Rs. 000

A B C A B
Invest
ment
taken
over 200 200 Balance b/d 1,050 700
Goodwill 1,460
written Cash paid
off 227.5 162.5 260 by C
Goodwill
3/5 of 650 390
2/5 of 650 260
Balanc Revaluation
e c/d 1,170 702.5 1,200 A/c. 157.5 105
1,597.5 1,065 1,460 1,597.5 1,065 1,460

(b) A, B & C
Statement of financial position as at 1st July 2013
Rupees
Assets
Current assets (1,575,000 + 1,460,000) 3,035,000
7,010,000
Liabilities
Capital Account:
A 1,170,000
B 702,500
C 1,200,000
3,072,500
Long term loans 1,750,000
Current liabilities 2,187,500
7,010,000
8.2 P, Q AND R
There are two events, a retirement and an admission of a new partner. Each must
be dealt with separately.
Retirement of R
The profit sharing ratio before retirement is as follows:
P Q R Total
640,000 320,000 480,000 1.440.000
Simplifying 64 32 48 144
Using 16 as a common
denominator 4 2 3 9
Note that R owns 3/9 or 1/3 of the business.
If R’s share of goodwill is Rs. 216,000 and R owns 1/3 of the business it follows that
the total goodwill is Rs.216,000 u 3 = Rs.648,000.
The profit sharing ratio after retirement but before admitting S is as follows
P Q Total
640,000 320,000 960,000
Simplifying 64 32 96
Using 32 as a common
denominator 2 1 3
Revaluation Account
Rs. Rs’
Write down of inventory 25,000 Motor car 50,000
Profit transferred to: Allowance – receivables 20,000
P 80,000 Investments 135,000
Q 40,000
R 60,000
180,000
205,000 205,000

Answers
Partners’ capital – P Q R (Rs. 000)

P Q R P Q R
Balance b/d 640 320 480
Revaluation 80 40 60
Goodwill Goodwill
(2 :1) 423 216 (4: 2: 3) 288 144 216
Assets taken:
Motor car 200
Investments 160
Bank 396
Balance c/d 576 288
720 360 756 1008 504 756
Admission of new partner
The goodwill is the same as before (Rs.648,000). This is shared between P and Q in
their profit sharing ratio (2 to 1) and then removed by charging it to P, Q and S in the
new profit sharing ratio.
S is to receive ¼ of the profits. Therefore P and Q share ¾. P and Q share in the ratio
of 2 to 1 so this means that P will receive 2/4 and Q will receive ¼.
The new profit sharing ratio is 2:1:1.
S must introduce cash to cover his share of the goodwill and to pay into the capital.
The amount of capital is to be the same as that of Q which is Rs. 288,000.
Partners’ capital – P Q S (Rs. 000)

P Q S P Q S
Balance
b/d 576 288
Goodwill Goodwill
(2: 1: 1) 324 162 162 (2: 1) 432 216
Cash for:
goodwill 162
Cash (162 in other
the ratio 2:1) 108 54 assets 288
Balance c/d 576 288 288

1008 504 450 1,008 504 450

Statement of financial position as July 1, 2013

Rupees
Land and building 450,000
Motor cars (350,000 – 150,000) 200,000
Equipment 95,000
Inventories (500,000 less 5%) 475,000
Receivables 400,000
Less: Allowance 40,000
360,000
Investments 275,000
Cash in hand 65,000
Cash at bank (450 – 396 + 288 + 162 – (108 + 54)) 342,000
2,262,000
Capital:
P 576,000
Q 288,000
S 288,000
1,152,000
Payables and accrued expenses 485,000

Loan from Q 625,000
2,262,000
8.3 X Y AND Z
There are two events, a retirement and an admission of a new partner. Each must
be dealt with separately.
(i) When goodwill is not recorded in the books:
Retirement of X: Dr (Rs.) Cr (Rs.)
Journal 1: Recognise goodwill in old profit
sharing ratio (W1)
Goodwill 1,890,000
X’s capital account (2) 420,000
Y’s capital account (3) 630,000
Z’s capital account (4) 840,000
Journal 2: Remove goodwill in new profit
sharing ratio (W1)
Z’s capital account (4) 1,080,000
Goodwill account 1,890,000
Alternative to journals 1 and 2
Y’s capital account 180,000
Z’s capital account 240,000
X’s capital account 420,000
Journal 3: Withdrawal of X’s interest in the
partnership (W2)
X’s capital account 1,420,000
Current assets (cash/bank) 1,420,000

Answers
Admission of A:
sharing ratio (W1)
Goodwill (W3) 2,250,000
Journal 5: Remove goodwill in new profit
sharing ratio (W1)
A’s capital account (2) 500,000
Goodwill account 2,250,000
Alternative to journals 4 and 5
A’s capital account 500,000
Y’s capital account 214,286
Z’s capital account 285,714
Journal 6: Payment of cash into the partnership by A
Cash (W4) 1,380,000
A’s capital account 1,380,000
(ii) When goodwill is recorded in the books:
Retirement of X: Dr (Rs.) Cr (Rs.)
sharing ratio (W1)
Goodwill 1,890,000
X’s capital account (2) 420,000
Journal 2: Withdrawal of X’s interest in the
partnership (W2)
X’s capital account 1,420,000
Current assets (cash/bank) 1,420,000
Admission of A:
Journal 3: Recognise additional goodwill (W3)
in old profit sharing ratio (W1)
Goodwill 360,000
Journal 4: Payment of cash into the partnership by A
Cash (W4) 1,380,000
A’s capital account 1,380,000
WORKINGS

W1 Profit sharing ratios

The profit sharing ratio before retirement is as follows:
X Y Z Total
Capital 1,000,000 1,500,000 2,000,000 1.440.000
Profit sharing ratio
before retirement
of X (using
500,000 as a
common
denominator) 2 3 4 9
after X leaves (but
before A joins) 3 4 7
after A joins (given
in question) 2 3 4 9
W2 Cash taken by X on retirement
X’s capital on retirement: Rs.
Capital before allocation of goodwill 1,000,000
Share of goodwill 420,000
1,420,000
W3 Goodwill on admission of A
A’s share of the goodwill is Rs. 500,000.
A owns 2/9 of the business therefore Rs. 500,000 is 2/9 of the agreed
amount of goodwill on A’s admission.
Therefore the total goodwill = Rs. 500,000 u 9/2 = Rs. 2,250,000
This section is only relevant to part (ii)
If goodwill is retained the books Rs. 1,890,000 has already been
recognised. Therefore an additional amount of goodwill must be
recognised on admission of A.
This is Rs. 2,250,000 – Rs. 1,890,000 = Rs. 360,000.
W4 Cash introduced by A on admission
When A joins he must introduce capital in proportion to his profit share
(i.e. 2/3 of that of Y or 2/4 of that of Z – see working 1).
The capital of Y or Z before A’s admission is their capital after X’s
retirement.
The capital balances of Y and Z may be calculated as follows (only
one is needed but both are given here for completeness).
Capital before admission of A: Y (Rs.) Y (Rs.)
Capital before allocation of goodwill 1,500,000 2,000,000
Share of goodwill recognised (see 630,000 840,000
journal 1)
Share of goodwill removed (810,000) (1,080,000)
(see journal 2)
1,320,000 1,760,000

Answers
Therefore, A must pay in cash as follows

Rs.
2 2
Share of capital ( /3 of 1.320,000 or /4 of 1,760,000) 880,000
Share of goodwill 500,000
1,380,000
8.4 AQUEEL AND BARKAT
Calculating the profit before periodic allocation
Rs.
Net profit as per question 486,000
Add: allowance for bad debts 48,000
Partners’ salaries
Aqueel (12 × 28,000) 336,000
Barkat (12 × 25,000) 300,000
Shahid (9 × 20,000) 180,000
Net profit before partners’ salaries 1,350,000
Statement of profit reconciliation

Period to Period to
Sept. 30 June 30
(3 months) (9 months)
Net profit (1,350,000 split 3:9) 337,500 1,012,500
Less: Bad debts 48,000 -
Less: Share of profit of manager (1,012,500×5/105) - 48,214
289,500 964,286
Profit share:
First 3 months Total A B
Salaries:
3 u 28,000 84,000 84,000
3 u 25,000 75,000 75,000
159,000
A’s share (3/5 of 130,500) 78,300 78,300
2
B’s share ( /5 of 130,500) 52,200 52,200
Residual profit 130,500
Profit for the first 3 months 289,500 162,300 127,200

Profit share:
Last 9 months Total A B S
Salaries:
9 u 28,000 252,000 252,000
9 u 25,000 225,000 225,000
9 u 20,000 180,000 180,000
657,000
A’s share (35% of 307,286) 107,550 107,550
B’s share (35% of 307,286) 107,550 107,550
S’s share (30% of 307,286) 92,186 92,186
Residual profit 307,286
Profit for the first 3 months 964,286 359,550 332,550 272,186
Partners’ Capital Accounts for the year to June 30, 2013

Aqueel Barkat Shahid Aqueel Barkat Shahid
Rs. Rs. Rs. Rs. Rs. Rs.
Balance b/f 250,000 400,000 -
Goodwill 180,000 120,000
Revaluati Revaluation
-
on 70,000 70,000 60,000 120,000 80,000
Bank 500,000
Share of
profit:
Drawings: First 3m
Salaries 84,000 75,000 Salaries 84,000 75,000

Profits 78,300 52,200
Last 9m
252,000 225,000 180,000 Salaries 252,000 225,000 180,000
336,000 300,000 180,000 Profits 107,550 107,550 92,186

Cash 150,000 120,000 90,000
Balance
c/f 515,850 569,750 442,186
Total 1,071,850 1,059,750 772,186 1,071,850 1,059,750 772,186

Answers
8.5 ALPHA AND BETA

Capital Accounts
Alpha Beta Gamma Alpha Beta Gamma
Profit
adjustme Balance
nts 17,400 11,600 - b/d 1,042,200 494,800 -
Goodwill
in new Goodwill in
PSR old PSR
(W2) 227,700 136,620 91,080 (W2) 273,240 182,160 -
Furniture - - 120,000
Inventory - - 80,000
Balance
c/d 1,070,340 528,740 350,000 Bank (W4) - - 241,080
1,315,440 676,960 441,080 1,315,440 676,960 441,080
Alpha, Beta and Gamma Statement of financial position as on 1st April, 2013
Assets Rs. Rs.
Non-current assets:
Furniture & fittings 600,000
Add: brought by Gamma 120,000
720,000
Add: as per adjustment 6,400
726,400
Office equipment 300,000
Motor car 375,000
1,401,400
Current assets:
Inventory 250,000
Add: brought by Gamma 80,000
330,000
Sundry receivables 190,000
Less: allowance for bad debts 11,400
178,600
Cash at bank (118,000+150,000+91,080) 359,080
867,680
2,269,080


Capital accounts
Alpha 1,070,340
Beta 528,740
Gamma 350,000 1,949,080
Sundry payables (296,000+24,000) 320,000

2,269,080
Workings:
1 Profit sharing ratios Alpha Beta Gamma
Old sharing ratio 60 40 -
New sharing ratio 50 30 20
2 Computation of Goodwill Rs.
Profit for the last three years before adjustments 712,100
Add: furniture wrongly written off to revenue 8,000
Less: depreciation on furniture for two years (1,600)
6,400
Purchase invoice omitted (24,000)
Allowance for doubtful debts (6% u 190,000) (11,400)
(29,000)
Adjusted total profits for last three years 683,100
÷3
Average annual profit over the last three years 227,700
Number of years purchase u2
Goodwill 455,400
Share of goodwill in old profit sharing ratio
Alpha (60% u 455,400) 273,240
Beta (40% u 455,400) 182,160
455,400
Share of goodwill in old profit sharing ratio
Alpha (50% u 455,400) 227,700
Beta (30% u 455,400) 136,620
Gamma (20% u 455,400) 91,080
455,400

Answers
3 Profit adjustments
Alpha and Beta have already shared in a profit figure that included the errors
discovered.
The total adjustments to profit due to these errors must be shared between
the original partners in the old profit sharing ratio.
The complete journals are as follows (note that these were not required but
are given for completeness).
Dr (Rs.) Cr (Rs.)
Furniture 6,400
Alpha’s capital (60%) 3,840
Beta’s capital (40%) 2,560
Payables 24,000
Allowance for doubtful debts 11,400
Net impact on each partner Alpha Beta
Credit (3,840) (2,560)
Debit 14,400 9,600
Debit 6,840 4,560
Net debit 17,400 11,600
4 Cash introduced by Gamma
Rs.
Goodwill purchase (W2) 91,080
Agreed amount (given in question) 150,000
241,080
8.6 L&N
Capital Accounts
L N
Rs. Rs.
Bal b/d 150,000 100,000
Goodwill - Revaluation old PSR (3:2) 48,000 32,000
Revaluation of other assets:
L&B 40,000
P&E (6,000)
Inventory (20,000)
Receivables 3,000
Old PSR (3:2) 17,000 10,200 6,800
Balance c/d into new partnership 208,200 138,800

Old Books - S & M
S M
Rs. Rs.
Bal b/d 60,000 20,000
Goodwill - Revaluation old PSR (2:1) 40,000 20,000
Motor car taken over (6,000)
Profit on car taken over - old PSR (2:1) 1,600 800
Revaluation of other assets:
P&E (29,990 - (26,000 - 3,600) 7,590
Inventory (6,000)
Receivables (4,500)
Old PSR (2:1) (2,910) (1,940) (970)
Balance c/d into new partnership 99,660 33,830
New books - L, N and S (showing M’s retirement)
L N S M
Rs. Rs. Rs. Rs.
Transferred from old books 208,200 138,800 99,660 33,830
Loan a/c - transfer on

retirement 33,830
Goodwill not to be recorded

therefore reversed in new
PSR (80,000 + 60,000=
140,000 in PSR 2:1:1) (70,000) (35,000) (35,000)
138,200 103,800 64,660
This total of Rs.306,660 to

be contributed in PSR of
2:1:1 (153,330) (76,665) (76,665)
Difference to be transferred
to current account (15,130) 27,135 (12,005)
Bal b/d 153,330 76,665 76,665 nil

Answers
Statement of financial position after amalgamation

Rs. Rs. Rs.
Non-current assets
Freehold premises 120,000
Plant, equipment and motor 57,990
vehicle
177,990
Current assets
Inventory 206,000
Receivables 132,500
Bank 34,000
372,500
Current liabilities
Overdraft 40,000
Payables 170,000
(210,000) 162,500
340,490
Current Capital
L (15,130) 153,330 138,200
N 27,135 76,665 103,800
S (12,005) 76,665 64,660
306,660 306,660
Loan account (M) 33,830
340,490
8.7 W, Y AND A
Realisation accounts
Rs. Rs. Rs.
Assets at carrying amount: Cash - proceeds of sale:
Premises 520,000 Premises 600,000
Plant and machinery 80,000 Plant 50,000
Vehicles 60,000 Inventory 75,000
Inventory 90,000 Receivables 67,000
Receivables 70,000 Discount received 2,000
Dissolution costs 20,000 Capitals accounts - cars
taken over
Partners capital accounts - W 25,000
Profit on realisation in PSR Y 30,000
W 9,000 A 15,000
Y 9,000
A 6,000
______
24,000
_______
_______
864,000
_______ 864,000
_______

Cash Account
Rs. Rs.
Bal b/d 40,000 Payables 18,000
Realisation a/c - proceeds
Receivables 67,000 Costs 20,000
Premises 600,000 Loan - Y 100,000
Plant and Machinery 50,000 Capital a/c W 304,000
to close Y 191,000
Inventory _______ off
75,000 A 199,000
_______
832,000
_______ 832,000
_______
Capital accounts
W Y A W Y A
B/d 300,000 200,000 200,000
Cars 25,000 30,000 15,000 Current 20,000 12,000 8,000
Cash _______
304,000 _______
191,000 _______
199,000 Profit 9,000 9,000
_______ _______ 6,000
_______
329,000 _______
_______ 221,000 _______
214,000 329,000 _______
_______ 221,000 214,000
_______

Answers
CHAPTER 9 – FUNDAMENTALS OF COST ACCOUNTING
9.1 SIGMA LTD

(i) Differences in profit statements
The differences in the statements reflect the different uses of the two sets of
accounts, as detailed below.
Financial accounts analyse costs by function (e.g. production, selling,
finance, etc.) and comply with generally accepted accounting practice
(e.g. IASs) and relevant legislation, as they are used externally by
shareholders and creditors.
Management accounts analyse costs by nature (e.g. fixed, variable,
semi-variable, etc.), as they are used internally for decision-making.
Management accounts profit statements may be prepared either on an
absorption or on a marginal costing basis, the latter giving better
information for short-term decision-making, as fixed costs are treated as
period costs and charged to the profit and loss account when incurred.
Management accounts record costs through cost centres (departments)
and cost units (products) to give responsibility for control of costs to
individuals. A standard costing system may be used in the business to
analyse variances effectively, and management accounts profit
statements prepared, say, on a departmental basis, may include notional
intra-departmental charges (e.g. for rent).
Financial accounts in the main give a financial record of past
transactions but are very limited in their use for control as they do not
separate fixed and variable costs. They must be prepared on an
absorption basis, where fixed production overheads are treated as
product costs and charged to the income and expenditure account when
units are sold, in line with the accruals basis in IAS 1 (and The
Framework) and inventory measurement principle in IAS 2. The
financial accounts profit will include non-cost items, such as finance
costs and profits or losses on disposal of assets.
(ii) Differences in accounting records
The accounting records for financial accounts are summarised records
accounting for costs as they accrue.
The accounting records for management accounts are far more detailed
in that they break down costs by centre and unit for control purposes.
The cost accounts produced by the management accountant may be
integrated within the financial ledgers where the basis of valuation used
in each is the same. However, the cost accounts may well be kept
separately from the financial accounts in a larger organisation where
different people can be responsible for the different areas.
Where cost accounts are kept separate, control accounts are maintained
in both sets of books to ensure that the double entry is maintained in
each system.

9.2 MANAGEMENT INFORMATION FUNCTIONS

The role of the management accountant within an organisation is to provide
information for management in order that they may manage effectively. Although
the information that the management accountant must provide will be specific to the
organisation and the industry in which it operates, there are three main functions for
which information is required – planning, decision-making and control.
The planning activities of an individual manager will depend on the objectives of the
organisation as a whole. It will be assumed that normally these objectives will
include the achievement of at least a target level of profit. Planning must take place
to ensure that those products are sold which give the highest contribution towards
profit. Therefore information regarding the revenue and costs for each product
under consideration will be needed in order that relative profitability may be
evaluated.
Once all the necessary information is available, the decision-making process can
take place. The chosen production plan must be expressed in financial terms as
well as in terms of units of product.
At the end of the accounting period under consideration, actual production and sales
figures must be compared with the results expected in the original plan. This is
necessary for management to control the business properly. Where there are
differences between actual and planned performance, investigation may be required
so that, if necessary, corrective action may be taken.

Answers
9.3 JOHN PIRELLI

(i) Direct and indirect costs
Direct cost is also called prime cost; indirect costs are often referred to as
overheads.
Direct costs are those specifically attributable to units of output (clients’ jobs);
these would include printers’ time, paper costs, plate-making costs.
Indirect costs are those not capable of such close matching, such as rent and
rates, insurance, depreciation of machinery.
(ii) Fixed and variable costs
Fixed costs are those independent of the level of output (the amount of
printing work done). Into this category would come rent and rates, advertising,
audit fee, electricity for lighting and heating.
Variable costs increase as output increases, such as paper costs, electricity
costs for powering printing presses and the cost of ink or plates.
A third category of cost is “semi-variable”, such as electricity (with a fixed and
variable element). These three can best be described graphically.
(iii) Production and non-production costs

The category of “production costs” is important to the extent that such types of
cost can be incorporated in the valuation of any stocks of finished work at the
end of an accounting period which in turn is needed for profit determination.
Examples of these costs would be as follows.
Production Paper, all print-room costs
Non-production Your secretary’s salary, advertising,

delivery van, running expenses
(iv) Committed and discretionary costs

Committed costs are those essential for the running of the business: paper,
depreciation of presses, assistant printer’s wages, rent of printing room.
Discretionary costs are incurred at the whim of management: machine
maintenance contract charges, cost of Christmas party, advertising costs.
Note Whatever you call them, it is necessary to recover all these costs
from fees charged to customers. To do that you need to know how
much is their amount. Hence the need for your costing system.

9.4 CLASSIFICATION OF COSTS

(a) Fixed, variable and semi-variable costs
A fixed cost item is one for which the expenditure will not be affected by
changes in the level of activity. In general, fixed costs are incurred in
providing the facilities or conditions to undertake production. Therefore,
they are more usually incurred in relation to time periods than to activity.
This is not to say that such costs are a constant amount even for short
periods of time. Clearly, price changes will vary the amount, as in the
instance of paying local rates based on rateable value where the annual
charges are in line with inflation. Finally, fixed cost per unit of product
varies inversely with output.
A variable cost item is one for which the total expenditure will tend to
vary more or less directly with output or activity. Nevertheless, the
variable cost expenditure may also vary as the result of other influences,
such as inflation or competition or even changes in supply. It is possible
that any change in the number of units purchased could be more than
offset by an opposite price change. Even so, the total expenditure at the
new price will vary directly with output. Variable cost per unit of product
tends to be more or less constant at each different level of output, other
things being equal.
A semi-variable cost is one for which the total expenditure tends to vary
directly with the volume of output/activity, but proportionately less than
the change in output/activity. Generally, such cost items are composites
with a variable element and a fixed element. A good example is
telephone charges in which the rental is a fixed charge and payable
irrespective of activity levels. The variable element comprises the
charge for calls made and tends to be related to business activity. The
cost per unit of product will reflect both.
(b) Examples of each type of cost
Fixed Variable Semi-variable
2 Factory insurance 7 Direct materials 1 Telephone (standing
charge + calls)
3 Legal expenses 4 Social Security 6 Light and heat
5 Rent of premises 12 Casual labour 9 Machine
servicing/repairs
8 Lift operator’s 11 Contract cleaning
wages services
10 Foreman’s salary
Tutorial note: Each classification is open to debate. Hard and fast rules
cannot be laid down; precise classification would depend upon the particular
circumstances of the firm.

Answers
9.5 REGRESSION 1
Workings
Output Total
cost
units Rs.000
x y 6x2 6xy 6y2
5 20 25 100 400
9 27 81 243 729
4 17 16 68 289
5 19 25 95 361
6 23 36 138 529
29 106 183 644 2,308
= 6x = 6y = 6x2 = 6xy = 6y2
There are five pairs of data, so n = 5.

b= n6xy – ∑x6y
n6x2 – (6x) 2
b= 5 (644) – (29)(106) = 3,220 – 3,074 = 146

5 (183) – (29)2 915 – 841 74
b (in Rs.000) = 1.97
a= ∑y – b ∑x
n n
a= 106 – 1.97 (29) = 21.2 – 11.4

5 5
a (in Rs.000) = 9.8
Answer
(a) The estimate of monthly fixed costs and the variable cost per unit is therefore:
y = 9,800 + 1,970x.
(b) When output is expected to be 8 units, the expected total costs will be:
Rs.
Fixed 9,800
Variable (8 x Rs.1,970) 15,760
Total costs 25,560
(c) Using the high/low analysis:
units Rs.000
High: Total cost of 9 = 27
Low: Total cost of 4 = 17
Difference: Variable cost of 5 = 10
Therefore variable cost per unit produced = Rs.10,000/5 units = Rs.2,000.

Substitute in low equation Cost

Rs.
Total cost of 4 units 17,000
Variable cost of 4 units (u Rs.2,000) 8,000
Therefore fixed costs per week 9,000
Cost estimate for 8 units Cost

Rs.
Fixed costs 9,000
Variable cost of 8 units (u Rs.2,000) 16,000
Estimated total costs 25,000
9.6 REGRESSION 2
5(254) - (15)(79)
b =
5(55) - (15)(15)
1,270 - 1,185
=
275 - 225
b = 85/50 = 1.7
79 1.7(15)
a =
5 5
a = 10.7
Forecast: Sales in Rs.millions = 10.7 + 1.7x

Forecast for Year 6 = 10.7 + 1.7(6) = 20.9 (Rs.20.9 million)
Forecast for Year 7 = 10.7 + 1.7(7) = 22.6 (Rs.22.6 million).
9.7 COST ESTIMATION

(a) High low method
Rs.
Total cost of 22,000 units 74,000
Therefore variable cost of 10,000 units 22,000
Variable cost per unit = Rs.22,000/10,000 units = Rs.2.20.

Rs.
Variable cost of 22,000 units (u Rs.2.20) 48,400
Therefore fixed costs 10,000 units 25,600
Fixed costs = Rs.25,600 per month.

Answers
In a month when output is 15,000 units, the estimated total costs are:
Rs.
Fixed costs 25,600
Variable costs (25,000 u Rs.2.20) 55,000
Total costs 80,600
(b) Linear regression analysis
Workings
Output Total cost
2
x y x xy y2
17 63 289 1,071 3,969
15 61 225 915 3,721
12 52 144 624 2,704
22 74 484 1,628 5,476
18 68 324 1,224 4,624
84 318 1,466 5,462 20,494
5 5 , 464 84 318
b
5 1, 466 84
2
27 ,310 26 ,712
7 ,330 7 ,056
598
2 . 18
274
318 2 . 18 84
a
5 5
= 63.6 – 36.6 = 27.0
Variable costs = Rs.2.18 per unit and fixed costs per month are Rs.27,000.
Rs.
Fixed costs 27,000
Variable costs (25,000 u Rs.2.18) 54,500
Total costs 81,500

9.8 IMI LIMITED
Direct labour Overheads

(xy) (x2)
Hours (x) (y)
September 2009 50 14,800 740,000 2,500
October 2009 80 17,000 1,360,000 6,400
November 2009 120 23,800 2,856,000 14,400
December 2009 40 11,900 476,000 1,600
January 2010 100 22,100 2,210,000 10,000
February 2010 60 16,150 969,000 3,600
450 105,750 8,611,000 38,500
n( ¦ xy) - ( ¦ x)( ¦ y) 6 x 8,611,000 - 450 x 105,750

b (Variable cost per unit) 143.1053
2 2 2
n( ¦ x ) (¦ x) 6 (38,500) - (450)
( ¦ y) b( ¦ x) (105,750 - 143.11 (450))

a (Fixed costs per month) 6,892
n 6
9.9 BULBUL LIMITED

Cost Rs.000’
Units (x) (xy) (x2)
(y)
March 2011 75 900 67,500 5,625
April 2011 60 700 42,000 3,600
May 2011 65 850 55,250 4,225
June 2011 80 950 76,000 6,400
July 2011 105 1,200 126,000 11,025
August 2011 95 1,040 98,800 9,025
480 5,640 465,550 39,900
n( ¦ xy) - ( ¦ x)( ¦ y) 6 u 465,550 - 480 u 5,640

b (Variable cost per unit) 9.57
2 2 2
n( ¦ x ) ( ¦ x ) 6 (39,900) - (480)
( ¦ y) b( ¦ x) (5,640 - 9.57 (480))
a (Fixed costs per month) 174
n 6
Estimated cost to produce 110 units:

Y = a + b (x)
= 174 + 9.57 x 110 = Rs. 1,227

Answers
CHAPTER 10 – INTERPRETATION OF FINANCIAL STATEMENTS
10.1 WASIM
Ratios
Year 7 Year 6
Gross profit % =
x 100 x 100 = 19% x 100 = 20%
Sales 2,160 1, 806
Net profit % =
Net profit 9 53
x 100 x 100 = 0.4% x 100 = 2.9%
Sales 2,160 1, 806
Profit before interest and tax

Return on capital employed =
Share capital and reserves + Long - term debt capital
15 56
x 100 = 6% x 100 = 29%
246 190
Sales
Asset turnover = x 100
2,160 1, 806
= 8.8 times = 9.5 times
246 190
Current ratio =
Current assets 422 265
Current liabilities 254 147
Quick ratio =
Current assets excluding inventory 422 - 106 265 - 61
1 .2 times 1.4 times
Current liabilities 254 147
Average time to collect =

Trade receivables 316 x 365 198 x 365
x 365 53 days 40 days
Sales 2,160 1, 806
Average time to pay =

Trade payables 198 x 365 142 x 365
x 365 = 41 days = 36 days
Cost of purchases 1, 755 1, 444
Inventory turnover =
Inventory 106 x 365 61 x 365
x 365 22 days = 15 days
Cost of sales 1, 755 1, 444

10.2 AMIR AND MO

Amir Mo
Gross profit % =
Gross profit 90, 000 490, 000
x 100 x 100 = 60% x 100 = 70%
Sales 150, 000 700, 000
Net profit % =
Net profit 44, 895 270, 830
x 100 x 100 = 30% x 100 = 39%
Sales 150, 000 700, 000
Profit before interest and tax

Return on capital employed =
Amir 61, 500 + 500

x 100 = 28.5%
207, 395 + 10, 000
Mo 371, 000 + 12, 000

x 100 = 47%
565, 580 + 250, 000
Sales
Asset turnover = x 100
Amir 150, 000

= 0.7 times
207, 395 + 10, 000
Mo 700, 000
= 0.85 times
565, 580 + 250, 000
Amir Mo
Current ratio =
Current assets 50, 000 153, 250
Current liabilities 22, 605 117, 670
Quick ratio =
Current assets excluding inventory 50, 000 - 12, 000 153, 250 - 26, 250
Current liabilities 22, 605 117, 670
Average time to collect =

Trade receivables 37, 500 105, 000
x 365 x 365 = 91 days x 365 = 55 days
Sales 150, 000 700, 000
Average time to pay =

Trade payables 22, 605 117, 670
x 365 x 365 = 137 days x 365 = 204 days
Cost of purchases 60, 000 210, 000
Inventory turnover =
Inventory 12, 000 26, 250
x 365 x 365 = 73 days x 365 = 46 days
Cost of sales 60, 000 210, 000

Answers
10.3 Alpha Limited and Omega Limited

(a)
Alpha Limited Omega Limited
(i) Current ratio
Current assets 620,000 504,000

Current liabilitie s 240,000 440,000
= 2.58:1 = 1.15:1
(ii) Acid test
Current assets - stock 340,000 332,000

Current liabilitie s 240,000 440,000
= 1.42:1 = 0.75:1
(iii) Creditors ratio
Average creditors 180,000 344,000

u 365 u 365 u 365
Purchases or cost of sale 1,120,000 1,342,000
= 59 days = 94 days
Collection period/Receivables
(iv)
Ratio
Average debtors 310,000 300,000

u 365 u 365 u 365
Sales 1,440,000 1,720,000
= 79 days = 64 days
(b) Comments on comparative analysis of the two companies.

Based on the ratios computed above:
(i) In terms of working capital and liquidity, Alpha Limited is in a better
position to honour its obligations as they fall due because its current
ratio and acid test ratio are higher than those of Omega Limited.
(ii) Omega Limited’s payment period is better than that of Alpha Limited’s
because Omega Limited uses supplier’s funds to finance its
operation.
(iii) Omega Limited’s collection period is also better than that of Alpha
Limited. It extends shorter credit period to its customers than Alpha
Limited.
(iv) Omega Limited’s credit policy is better than that of Alpha Limited.
This is because there is 30 days difference between its payments
period and collection periods compared with Alpha Limited that had a
longer collection period than its payment period.


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Financial accounting and reporting I

© Emile Woolf International, August 2017

© Emile Woolf International ii The Institute of Chartered Accountants of Pakistan

© Emile Woolf International iii The Institute of Chartered Accountants of Pakistan

© Emile Woolf International iv The Institute of Chartered Accountants of Pakistan

CHAPTER 1 – IAS 2: Inventories

1.1 SHADUR RETAIL 1 79

1.2 MEASUREMENT OF INVENTORIES 2 80

1.3 KHEWRA MANUFACTURING 2 80

1.4 SUPERIOR ENTERPRISES 3 81

1.7 FASHION BLUE ENTERPRISES 4 82

1.8 KHAN LIMITED 5 84

1.9 MUGHAL TRADING CORPORATION 6 85

1.11 SUN SOYA OIL & COMPANY 8 88

CHAPTER 2 – IAS 16: Property, plant and equipment

2.1 SUNDRY QUESTIONS 9 89

2.2 LAHORE MOTORS LIMTED 10 90

2.4 CHINIOT TRUCKING LIMITED 11 93

2.5 ASLAM, BASHIR & COMPANY 12 95

2.6 AZFAR AND COMPANY 13 96

© Emile Woolf International v The Institute of Chartered Accountants of Pakistan

2.7 NAVEED ENTERPRISES 13 97

2.9 ZIAKOT STEEL WORKS 15 99

CHAPTER 3 – IFRS 15: Revenue from contracts with customers

3.1 PARVEZ LIMTED 16 100

3.2 SACHAL LIMITED 16 101

CHAPTER 4 – Preparation of financial statements

4.1 SAGODHA SPICES LIMITED 17 103

4.2 KASUR CHEMICALS LIMITED 18 104

4.3 OKARA HAIR PRODUCTS LIMITED 19 105

4.4 THATTA TOURS LIMITED 20 107

4.5 BSZ LIMITED 21 109

4.6 YASIR INDUSTRIES LIMITED 22 112

CHAPTER 5 – IAS 7: Statement of cash flows

5.1 TRANGO LIMITED 24 115

5.2 NARDONE LIMITED 25 117

5.3 HOT SAUCE LIMITED 26 118

5.4 QUETTA TRACK LIMITED 27 120

5.5 MARDAN SOFTWARE LIMITED 28 122

5.6 TARBELA TRADERS 30 124

5.7 THE SINDH ROBOTICS COMPANY 31 126

5.8 ABIDA 32 128

5.9 MR MOOSANI 33 129

5.10 SAKHAWAT HUSSAIN 34 130

5.11 MR JUNAID JANJUA 35 131

5.12 AMIN INDUSTRIES 36 132

CHAPTER 6 – Income and expenditure accounts

6.1 GILTAN GOLF CLUB 37 134

© Emile Woolf International vi The Institute of Chartered Accountants of Pakistan

6.2 LANGTON HOCKEY CLUB 38 136

6.3 GULSHAN CRICKET CLUB 39 138

6.4 SEHAT CLUB 40 140

6.5 AB SPORTS AND SOCIAL CLUB 41 141

6.6 GD SPORTS CLUB 43 143

6.7 HB TENNIS CLUB 44 145

6.8 MONARCH SPORTS CLUB 45 147

6.9 LH SPORTS CLUB 46 148

CHAPTER 7 – Preparation of accounts from incomplete records

7.1 SHORT QUESTIONS 47 149

7.2 IRUM 47 150

7.3 COST STRUCTURES 48 151

7.4 TAHIR 49 152